Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

PWLLHELI HARBOUR BILL [Lords]

Read a Second time and committed.

Oral Answers to Questions — DEFENCE

Nuclear Missiles

Mr. Chapman: asked the Secretary of State for Defence if he will make a statement on any recent changes in the balance of nuclear intermediate range warheads between the Warsaw Pact and North Atlantic Treaty Organisation countries.

The Secretary of State for Defence (Mr. Michael Heseltine): Full details of the nuclear balance are given in chapter 4 of the 1983 "Statement on the Defence Estimates", which I published last week. This makes clear the continuing build-up in Soviet nuclear forces. Since last year the imbalance between the Soviet Union and NATO of the longer-range missiles and aircraft in this category has increased from 4:1 to 5:1.

Mr. Chapman: I am grateful to my right hon. Friend for that information. Will he go further and confirm that in recent years the Soviet Union, with the deployment of the SS20s, has more than 700 warheads targeted on western Europe at a time when NATO countries have withdrawn no fewer than 1,000 nuclea warheads? Will my right hon. Friend also confirm that cruise need not be deployed if the Soviets agree to dismantle the SS20s? In the light of that build-up, is it unreasonable to say to the Soviet Union that if it is serious about disarmament negotiations it should agree to withdraw its SS20s?

Mr. Heseltine: I am grateful to my hon. Friend for giving me the opportunity to confirm that since the 1979 NATO twin-track decision the number of SS20s has trebled. About two thirds of those missiles are now targeted on western Europe. NATO's purpose is to persuade the Soviet Union to remove those missiles. The Soviet Union is aware that if it will not do so we shall need to carry out the other side of the twin-track decision, which is the deployment of the cruise missile system.

Mr. Cartwright: Does the Secretary of State accept that the modernisation of NATO's intermediate nuclear forces provides an opportunity for the rationalisation of the

NATO nuclear arsenal in Europe, and particularly for a reduction in short-range and battlefield systems? When these matters are considered by the high level group later this year, will the Government press for major reductions in the tactical nuclear arsenal in Europe?

Mr. Heseltine: The hon. Gentleman will be aware that NATO withdrew 1,000 nuclear warheads last year. We are now carrying out a fundamental review and will make a judgment on that matter as soon as the result of the review is available. We have also made it clear that every new weapon that is deployed will be countered by an equivalent withdrawal in numerical terms.

Mr. Wilkinson: Will my right hon. Friend take fully into account the fact disclosed by SACEUR. General Bernard Rogers, on 7 June at the assembly of the Western European Union, that all the SS20s deployed in eastern Europe have spare rounds on site, and that therefore the number of warheads targeted against western Europe is double what is often supposed, as was confirmed by the general when questioned?

Mr. Heseltine: My hon. Friend touches on one of the great problems associated with the verifiability of nuclear weapons. We have made it clear that we are anxious to talk only about the number of warheads deployed and welcome the fact that in recent statements Mr. Andropov has indicated that he is now prepared to talk about warheads.

Mr. Silkin: The Secretary of State says that we are prepared to talk about nuclear warheads. As the only member of the Warsaw Pact which possesses nuclear weapons is Russia, whereas on the NATO side they are possessed by the United States, Great Britain and, even though excluded under chapter 4, France, why will the Secretary of State and the Government not agree that British nuclear weapons — Polaris and, if it comes, Trident—should be put into the negotiating count when the time comes?

Mr. Heseltine: The right hon. Gentleman will notice that in the White Paper I have included the British Polaris system in the balance between the Soviet forces and the NATO alliance. The important point is that we have included it under the heading of strategic systems, not under intermediate range systems, to which the Geneva talks are directed.

Cruise Missiles

Mr. Andrew F. Bennett: asked the Secretary of State for Defence how many times each year it is envisaged that cruise missile trailers will leave Greerham Common for training exercises.

The Minister of State for the Armed Forces (Mr. John Stanley): I cannot add to what is said in paragraph 209 of the "Statement on the Defence Estimates" published last week.

Mr. Bennett: Does the Minister agree that the vast majority of British people, whether they are unilateralists or multilateralists, do not want cruise missiles to be based in Britain, and are particularly concerned that the Secretary of State wants to spend more time arguing between multilateralism and unilateralism rather than setting out specific proposals to ensure that Britain does not need cruise later in the year?

Mr. Stanley: The hon. Gentleman will be aware that we have recently had a general election at which a decisive mandate was given to the party that stood on a clear multilateralist platform.

Mr. Jim Spicer: Has my hon. Friend noted the recent antics of Monsignor Bruce Kent in relation to the cruise missile in trying to suggest that members of the armed services would be within their rights to disobey orders if it meant a confrontation? Will my hon. Friend take careful note of that and make sure that appropriate action is taken as and when necessary?

Mr. Stanley: My hon. Friend and other hon. Members will have seen, as I have, the extremely robust article on that subject in the leader column in one of today's papers.

Mr. Ron Davis: Given the Secretary of State's comments on cruise missiles and the Government's commitment to multilateral disarmament, will the Minister consider the logic of his argument and state whether the only nuclear threat to Britain will come from the USSR and the Warsaw Pact countries? If so, and if the Government's multilateralist policy is successful, does he ever envisage a position in which Britain will be free from nuclear weapons?

Mr. Stanley: It is a commonplace, which I should have thought everybody understood, that the only nuclear threat to Britain is from the USSR.

Chile

Mr. Fisher: asked the Secretary of State for Defence what matters he discussed with General Matthei and other representatives of the Chilean Government during their recent visit to London.

The Minister of State for Defence Procurement (Mr. Geoffrey Pattie): Neither General Matthei nor other Chilean representatives visited my right hon. Friend the Secretary of State for Defence. General Matthei called on me briefly. We discussed defence equipment matters and human rights.

Mr. Fisher: Will the Minister confirm that his discussions with General Matthei, however brief, included the possible future sales of nuclear arms and weapon systems to Chile?

Mr. Pattie: They did not.

Mr. Dalyell: In that case, what arms were discussed?

Mr. Pattie: None.

Mr. Duffy: Would it not be the ultimate irony and unspeakably shameful if an honoured ship such as HMS Hermes, which was deployed so effectively a year ago in the cause of democracy and self-determination, were disposed of to a regime such as the Chilean Government? Will the Minister deny that the Government ever contemplated such a step?

Mr. Pattie: HMS Hermes will not complete her service and pay-off until 1985. At the moment, no disposal of HMS Hermes is contemplated.

Cruise Missiles

Mr. Flannery: asked the Secretary of State for Defence on what date he expects the delivery of the cruise missiles to begin.

Mr. Adley: asked the Secretary of State for Defence if he will make a statement on the timetable for the installation of cruise missiles.

Mr. Heseltine: As my hon. Friend the former Minister of State for the Armed Forces informed the House on 3 May, preparations are proceeding to enable deployment of cruise missiles in the United Kingdom to begin by the end of the year unless an agreement involving the total elimination of all longer-range land-based intermediate range nuclear force missiles can be reached in the arms control negotiations in Geneva. I am not prepared to discuss the details of these preparations.

Mr. Flannery: Is it not a fact that an election is no good reason for an elected dictatorship and that opinion polls have revealed that a majority of the British people are against cruise and Trident missiles? Is it not also a fact that we in Britain have almost a third of those horrific missiles, yet the House has no means of knowing whether the Prime Minister's finger shares the trigger with the President of the United States, although most believe that the one finger on the trigger is that of the United States' President?

Mr. Heseltine: That matter has been fully ventilated in the House and the House is fully aware of the joint decision-making arrangements with the President of the United States. I do not know of any context in which an elected dictatorship could apply in Britain, unless it were the result of policies to which the hon. Gentleman gives his name.

Mr. Adley: In view of the implied insult to the integrity of the Queen's Own Highlanders following their measures at Greenham Common to defend the cruise base against the activities of the women there, which was referred to a moment ago by my hon. Friend the Member for Dorset, West (Mr. Spicer), does my right hon. Friend agree that that would be serious were it not for the fact that it came from a discredited cleric? Will my right hon. Friend support me in a recommendation to my right hon. Friend the Prime Minister that, in view of the notable contribution by the CND to the Conservative party's election victory, a knighthood or some other signal honour should be conferred upon Monsignor Bruce Kent?

Mr. Heseltine: I should support such a recommendation only on the basis that my right hon. Friend the Prime Minister has shown remarkable skill in rejecting other frivolous suggestions.

Mr. Speaker: Order. I appeal for shorter supplementary questions, please.

Mr. George Robertson: If the deployment of cruise missiles goes ahead and the INF talks continue after that. what proposals for verification will the Government put forward which the Soviet Union will think are sensible and reasonable?

Mr. Heseltine: That implies that I know what the Soviet Union will accept. The verification issue is at the centre of the debate and we have never yet been able to persuade the Soviet Union to accept on-site inspection, which is critical if there is to be mutual confidence.

Mr. Bottomley: Is it worth trying to explain to the Opposition that there is the problem of the unelected dictatorship of the Soviet Union? People who look for


weapons control and arms reduction should spend as much time being concerned about SS20s as they do about nuclear weapons on this side.

Mr. Heseltine: My hon. Friend comes to the heart of the matter. He can rely on the good sense of the British people, who rejected the advice of Labour Members on the matter.

Sir Patrick Wall: Is it not unlikely that the Soviet Union will negotiate seriously at either the INF talks or the mutual and balanced force reduction talks until the cruise missiles are deployed, after which we may expect serious negotiations?

Mr. Heseltine: I respect my hon. Friend's views, but I hope that that will not prove to be the case. It would be much more desirable if the Soviet Union were now to take seriously the decisions that were announced in 1979 to proceed four years later with the deployment of those weapon systems if we could not pursue meaningful negotiations in the meantime. I hope that the Soviet Union will realise that we mean what we say.

Mr. Meadowcroft: 1 question the Secretary of State's rather bizarre arithmetic on the mandate for and against cruise at the election, but does he accept that the basis for discussions on cruise is that it represents a dangerous escalation of the nuclear balance with an unverifiable weapon which may be placed here in the future?

Mr. Heseltine: The deployment of the cruise missile system is to counter the deployment of the Soviet SS20s, and as such it was the logical extension of the plans upon which the previous Labour Government were working.

Dr. McDonald: Why does the Secretary of State stick to an arbitrary timetable for the deployment of cruise missiles? If he and his Government are serious about disarmament talks, why not delay the deployment of cruise missiles to give time for agreement to be reached at Geneva?

Mr. Heseltine: Conservative Members think that four years is adequate if the Soviet Union has any intention of negotiating.

Trident

Mr. Canavan: asked the Secretary of State for Defence what recent representations he has received about the proposal to locate the Trident nuclear weapon in Scotland.

Mr. Stanley: The representations that my right hon. Friend the Secretary of State has received on Trident cover a wide range of matters. No separate record is maintained of letters dealing specifically with the question of the location of the base for the future Trident submarine force.

Mr. Canavan: How can the Government argue that they have a mandate for foisting this deadly weapon on the people of Scotland when this militant Tory Government were rejected by over 70 per cent. of the Scottish people at the general election? Bearing in mind that about half of the Scottish element of the recent proposed cuts in public expenditure are to be borne by the National Health Service, why are the Government so hell-bent on spending over £10,000 million of public money on a weapon of death instead of spending more to protect life in areas such as the National Health Service?

Mr. Stanley: I must remind the hon. Gentleman that he speaks in the Chamber not as a member of a Scottish assembly but as a member of a United Kingdom Parliament. I note that a gallup poll carried out for the BBC in May showed that the proportion of those in Britain against unilaterally getting rid of nuclear weapons was nearly 80 per cent.

Mr. Strang: Since the Trident 2D5 weapon system is designed to destroy Soviet missiles in their silos, is it not likely that the Soviet Union will regard it as a first-strike weapon even though it may not be the Government's intention to use it in that way?

Mr. Stanley: It is essential to maintain the British capability and to have an independent strategic deterrent. It is thus necessary to modernise the Polaris force, which will have become obsolescent by the early 1990s.

Mr. McNamara: Is not modernisation a polite way of talking about escalation? Trident represents a marked escalation of the arms race. Does the Minister accept that the majority of people in Britain do not want Trident? The Government have already cut their defence expenditure by £250 million and are likely to do so again in the autumn. We shall end up with a very expensive totem pole which we shall never be able to use, while at the same time our conventional forces are run down and are unable to defend the country properly.

Mr. Stanley: It is strange that the hon. Gentleman should consider that the Trident procurement programme involves escalation. That was certainly not the view taken by any of the previous Labour Governments, who were happy to support the procurement of Polaris. At that time they clearly did not regard it as escalation.

Sir Antony Buck: Does my hon. Friend agree that the hon. Member for Kingston upon Hull, North (Mr. McNamara) has just made a Freudian slip? The whole point is that we should never have to use such weapons. Our increased capability should form the foundation to enable us to get negotiations going on both sides of the Iron Curtain, thus ensuring that nuclear weapons are never used. That is the whole purpose of it all.

Mr. Stanley: I am grateful to my hon. and learned Friend, and he is entirely right. We are fortunate that Europe has had one of its longest periods of peace. The policy of deterrence is an integral part of that and it is the Government's firm intention to maintain it.

Defence Contracts

Mr. Kenneth Carlisle: asked the Secretary of State for Defence whether he will review the arrangements by which firms tender for contracts with the Ministry of Defence for the first time.

The Under-Secretary of State for Defence Procurement (Mr. Ian Stewart): Before a firm is invited to tender for the first time the Ministry normally satisfies itself as to the firm's capabilities.
The documentary arrangements by which firms are invited to tender for the first time are the same as those used with firms that have tendered before.
Aspects of contracts policy are reviewed from Time to time. However, there are no immediate plans for a review of tendering arrangements, which are generally operating satisfactorily.

Mr. Carlisle: Will my hon. Friend accept that that is a rather disappointing reply? Many firms tendering for the first time for Ministry of Defence work find it difficult to find their way round the labyrinthine complexities of the Ministry of Defence. Will my hon. Friend consider holding a review so that first-time buyers—often small firms — will find it much easier to make the right contacts in the Ministry?

Mr. Stewart: I recognise my hon. Friend's anxiety. We are making arrangements to make firms —particularly small companies—more aware of the points of contact in the Ministry, so that we can get round such problems.

Mr. Douglas: Does the Minister accept that there is a close relationship between such tendering policy and keeping technology in this country? Would he care to explain how a company such as Racal can announce that it will obtain a contract for ESM equipment for the type 23 long before the tender document and contract have been concluded by the Ministry of Defence?

Mr. Stewart: Individual companies must answer for themselves, but I assure the hon. Gentleman that such competitions are conducted with strict impartiality and with full regard to the importance of technology for our national purposes.

Mr. Harris: I welcome what my hon. Friend has said about small firms, but will he bear in mind the need to steer some contracts to development areas, and particularly special development areas, where there is high unemployment?

Mr. Stewart: There are certain provisions for firms in development areas, but I should not like any hon. Member to think that the Ministry of Defence steered contracts in certain directions in the way that my hon. Friend has, perhaps, suggested.

Mr. Skinner: What about the appalling experience of the contract given to a Swedish firm to build houses for the troops in the Falklands? That firm was run by a group of people in this country who were little more than consultants, and it had a turnover of only £17,000 per annum. Prior to getting the contract, that firm had not filed its accounts for three years. A firm in Britain in the neighbouring constituency of Amber Valley was unable to obtain the contract from the Ministry of Defence. A British firm wanted the job and there were British jobs at stake. but a Swedish firm was able to muscle in. The Minister promised—

Mr. Speaker: Order. It is unfair to ask long supplementary questions, because it prevents other hon. Members from asking questions.

Mr. Skinner: It is a long issue.

Mr. Stewart: The point made by the hon. Gentleman goes far wider than the original question.

Agile Combat Aicraft

Lord James Douglas-Hamilton: asked the Secretary of State for Defence whether he will make a statement on the agile combat aircraft and the plans for its development.

Mr. Pattie: The agile combat aircraft is a private venture and plans for its development are a matter for the firms concerned. In parallel we are pressing on with the experimental aircraft programme jointly with industry.

Lord James Douglas-Hamilton: Given that about 40,000 jobs in Britain may eventually depend upon that project, what progress has been made in laying the foundations for a European collaborative programme?

Mr. Pattie: Last week I was in Bonn and Munich having discussions and consultations on precisely this issue. We must be cautiously optimistic at present.

Mr. Robert Atkins: Is my hon. Friend aware that the importance of the project to British Aerospace and the Royal Air Force cannot be underrated? The French and Germans, and now even some other European and Western contractors, are considering some sort of cooperative project. Will my hon. Friend accept that the work force at British Aerospace recognises the enormous amount of work that he has personally put into the project and hopes that he will continue to do just as much?

Mr. Pattie: On the last point, I can certainly reassure my hon. Friend. When my right hon. Friend the Secretary of State meets his opposite number in France and then attends the trilateral meeting—which we hope will take place in the autumn—that will be one of the items on the agenda.

Mrs. Kellett-Bowman: Although the point has already been covered, I should like to stress the importance of this issue to Lancaster, which I represent. Will the Minister bear in mind the high unemployment rate there when making his decision?

Mr. Pattie: That factor will certainly be taken into account.

Dr. McDonald: Will the Minister reach a decision on that issue quickly, given the necessity to maintain jobs in our aerospace industry and, indeed, to maintain a British Aerospace industry in Britain? Will he reach a decision soon?

Mr. Pattie: I am fully aware of the problems facing British Aerospace, particularly following the conclusion of the Tornado programme towards the end of the decade. However, the hon. Lady must be aware that if we are to move ahead on a collaborative basis it cannot be done overnight. As I have said, we are actively pursuing the options and will come to a decision as soon as we can.

Nuclear Missiles

Mr. Meacher: asked the Secretary of State for Defence what response he has made to the latest Soviet proposals regarding deployment of INF missiles in Europe.

Mr. Heseltine: In the INF negotiations in Geneva the United States, with the full support of its allies, has made it clear that the latest Soviet proposals outlined by Mr. Andropov on 3 May are unacceptable to the alliance, because they are counter to the fair and equitable principles which NATO has consistently followed. I regret that little progress has been made in the negotiations because of Soviet intransigence. The zero option remains the alliance objective, but if that is too radical for the


Soviet Union we are prepared to agree a genuine balance of missile warhead numbers at as low a level as the Soviet Union will accept.

Mr. Meacher: Why are the Government so immobile and inflexible about the INF talks, given that the Soviets have now offered parity of warheads, and not just missiles at lower levels, that the Pershing 2 and cruise missiles are clearly counterforce weapons with first-strike nuclear capability—which the Soviet Union's SS20s clearly are not — and that SACEUR already has 400 MIRV warheads, which even if technically SALT counted are specifically alloted to the European theatre? Does that not show that the Government are not really serious about disarmament proposals?

Mr. Heseltine: What it does show is that if that is the Opposition's attitude they will be in as much trouble at the next election as they were at the last.

Sir John Biggs-Davison: Can my right hon. Friend explain the mystery of why so many Opposition Members are concerned about the introduction of certain weapons here and apparently unconcerned about the weapons already trained upon us and upon Mr. Livingstone's nuclear-free London?

Mr. Heseltine: I can help my hon. Friend. The explanation is simple—they are in Opposition and not in Government.

Mr. Silkin: Will the Secretary of State now come to the point which he ignored earlier? He talked about airborne and land-based missiles. Will he state here and now that the Government are prepared to negotiate with the Soviet Union our nuclear weapons in exchange for theirs? Yes or no?

Mr. Heseltine: I know that the right hon. Gentleman realises that this is the most important set of negotiations being conducted anywhere in the work . To think that it can be conducted on a yes or no basis defies the experience of any Government in the world.
Perhaps I can help the right hon. Gentleman and deal with his question as seriously as I think it is entitled to be dealt with. We have set out clearly in the White Paper that we see a balance in the various ranges of nuclear weapons. The British Polaris system, which is dedicated to NATO, is included in the strategic systems. During the recent election campaign we made it clear that if the Soviet Union and the United States were to bring about a quite different range of deployment of strategic systems—which would be in the same class as our Polaris system—we would not stand aside from the consequences of that much reduced level of deployment.

Mr. Silkin: Is the Secretary of State aware that the Danish Parliament, most people in Holland and possibly even the West Germans— [Interruption.] Government Members hate to hear things being said to them, particularly the hon. Member for Epping Forest (Sir J. Biggs-Davison). Is the Secretary of State aware that apparently the German Chancellor is also saying that the British and French nuclear weapons, whether or not we call them strategic, should be brought intc the discussions? Is he prepared to do that—yes or no?

Mr. Heseltine: I thought I had made it clear that if in the class of weapons systems to which Polaris belongs there was a significant and substantial breakthrough in

deployment between the Soviet Union and the United States this country would not stand aside from that decision. There is no sign at present that such a major breakthrough will take place.

Mr. Silkin: Will the right hon. Gentleman answer the question? Is he prepared to include this matter in the negotiations on the INF—yes or no?

Mr. Heseltine: The answer to that is absolutely clear. It is no. They are not intermediate range systems and the Government White Paper makes that clear. All that the right hon. Gentleman is doing is playing into the hands of the Soviet Union, which is trying to mislead Western public opinion into believing that they are.

Nimrod Aircraft

Mr. Arnold: asked the Secretary of State for Defence what representations he has received recently from British Aerospace about the servicing and refitting of Nimrod aircraft.

Mr. Pattie: I wrote to my hon. Friend on 30 March 1983. The position has not changed since then.

Mr. Arnold: When will the RAF make up its mind about what constitutes a service and what constitutes a refit? Is my hon. Friend aware that the company is anxious to sign the contract but that the RAF is dragging its heels?

Mr. Pattie: I shall examine the matter again. My understanding is that the RAF is not dragging its feet. There is a need to strike the right balance between the level of servicing by the RAF and the level of servicing by the company. In view of what has been said I shall re-examine the matter.

Mr. Eastham: Is the Minister aware of the aerospace industry's desperate plight and that only recently 3,500 workers were declared redundant? Does the Minister recall that during the Falklands crisis the industry came to the nation's aid? What assistance will the Minister give?

Mr. Pattie: I am aware of what the hon. Gentleman says. He will recall coming to see me a few months ago to make the same representations. Whether the Nimrod production line at Manchester is opened again is primarily for the company to decide. We are assisting the company to achieve export sales in every way possible because we think that that is the best way forward.

Territorial Army

Mr. Marlow: asked the Secretary of State for Defence what has been the strength of the Territorial Army in each of the last three years.

Mr. Stanley: On 31 March in each year the strength of the Territorial Army was 69,524 in 1981; 72,062 in 1982; and 72,805 in 1983.

Mr. Marlow: In view of the great benefits of the Territorial Army in increasing the available readiness of our armed forces and it also being a training ground for our young people which will set them up for life, will ray hon. Friend consider an even further extension of the Territorial Army?

Mr. Stanley: I am grateful to my hon. Friend and agree with him about the benefits of service in the Territorial


Army. He will be aware that the Government are in the process of organising a significant expansion of the Territorial Army. We are well on course to achieving our target of a further increase up to 86,000 by 1990.

Mr. Campbell-Savours: Will there be any cuts in the TA or in any other area of the Army's budget arising from the public expenditure statement last week?

Mr. Stanley: My right hon. Friend the Secretary of State will obviously have to consider the implications of the statement by the Chancellor of the Exchequer, but he has not yet decided how the savings required from the MOD will be made across the Department.

South Atlantic

Mr. Proctor: asked the Secretary of State for Defence how many Royal Navy ships are currently deployed in the south Atlantic; and if he will make a statement.

Mr. Stanley: Naval forces currently in the south Atlantic include destroyers, frigates, submarines and afloat support, together with a survey vessel and naval helicopters. I cannot give precise numbers, for reasons of operational security. Force levels are kept under constant review.

Mr. Proctor: Does my hon. Friend think that sufficient forces are on station there, not only in relation to the Falkland Islands, but to protecting the sea routes around the Cape? Does not my hon. Friend think that it is wise and prudent to consult friendly pro-Western Governments bordering the Atlantic to see what further protection of the sea links can be made available.

Mr. Stanley: My hon. Friend will be aware that the forces in the south Atlantic are there to carry out our defensive obligations to the Falkland Islands. We are satisfied with the level of disposition there at present.

Mr. Duffy: Does the Minister recall the statement in the defence Estimates that the present front-line force of destroyers and frigates, at 59, is expected to decline to 50 later in the decade? How does the Minister reconcile that decline with the continuing Falklands requirement, the requirement for Belize and Gibraltar guardships, the requirements for operational training for ships as well as assigned NATO roles? Can the Minister wonder that some people outside the House query the Government's defence priority?

Mr. Stanley: We have made a number of significant adjustments to the deployment of destroyers and frigates following events in the south Atlantic. All the four battle losses have been replaced with type 22 vessels. We are retaining the three carriers. We are running on up to four ships that would have been on standby by 1985 and we are retaining in service for another year the three Tribal class frigates that were on the disposal list. That is a significant response to events in the south Atlantic.

Mr. Dalyell: Will the Government discuss the detailed story by the political editor of The Mail on Sunday, Peter Simmonds, describing how Argentina was about to get from Italy and Switzerland Otomat missile systems which have a range of 125 miles? What representations are the Government making to the Governments of France, Italy and Switzerland about the acquisition of those weapons?

Mr. Stanley: As the hon. Gentleman is aware, we have already made clear to our allies our views on arms sales to Argentina.

Gibraltar

Mr. Latham: asked the Secretary of State for Defence whether he will make a statement on the current arrangements for discontinuing work at the dockyard at Gibraltar by the Royal Navy.

Mr. Ian Stewart: Discussions are continuing with the Gibraltar Government about the implementation of our decision to close the Gibraltar naval dockyard. We hope that a commercial undertaking will take over the facilities and offer employment to many of those working in the naval dockyard when it closes. I visited the Rock last week and outlined the substantial support Her Majesty's Government are prepared to make available to bring about these changes.

Mr. Latham: What will be the net expenditure saving from the closure? How does it compare with the importance of Gibraltar as a staging post for the Royal Navy on its way to the Falklands— leaving aside the dreadful effect of the closure on the local economy?

Mr. Stewart: The figure that has been given for the saving is £.13 million. My hon. Friend may be confusing the naval dockyard with the naval base, which will continue to operate.

Mr. Amery: As it was the general hope that the new Spanish Government would implement the Lisbon agreement and open the frontier properly, therefore providing an opportunity for tourism to expand, would it not be well to delay closing the dockyard or to find some alternative means of helping the Gibraltar economy until it is clear that the Lisbon agreement will be fulfilled in its entirety?

Mr. Stewart: I fully appreciate my right hon. Friend's point. Unfortunately, it is difficult to estimate the time scale of what might be involved on the future of the border. There are no obstacles on our side to its opening. The present position is that restrictions on the border are acting to the disadvantage of Gibraltar. That is one reason why we thought that it would be helpful to go ahead with the development of a commercial dockyard to assist the Gibraltar economy while the border remains closed.

Mr. McNamara: Is a £13 million saving really worth while compared with the benefits of maintaining an adequate dockyard facility for the Royal Navy? Did not that dockyard show its worth in the recent Falklands campaign? Will the Minister comment on the rumour circulating last week that one of the terms of aid and assistance to the dockyard workers was that they had to agree to a no-strike clause in any contract that the dockyard might be given?

Mr. Stewart: I cannot comment further about the discussions on the arrangements for the future of the dockyard. The decision to close the dockyard was taken because we no longer have a need for it.

Anti-radar Missile

Mr. Robert Atkins: asked the Secretary of State for Defence when he expects to make public his decision on an anti-radar missile to be purchased for the Royal Air Force.

Mr. Heseltine: I expect to make a decision in the near future.

Mr. Atkins: Will my right hon. Friend find time today, or in the near future, to remind his Cabinet colleagues of the importance of an early decision on the missile? It should be the ALARM missile, for a number of reasons, including the fact that it is half the weight, half the cost, will not require the transfer of technology, is British and is best.

Mr. Heseltine: I cannot overpraise the zealousness of my hon. Friend in advancing a cause so close to his constituency. I assure him that my Cabinet colleagues will be fully apprised of all the arguments about the weapon system.

Dependent Territories

Mr. Stanbrook: asked the Secretary of State for Defence if he is satisfied with the existing arrangements for the defence of the British dependent territories against external attack.

Mr. Stanley: Yes, Sir.

Mr. Stanbrook: As many British islands around the world have no local garrisons and are in strategically exposed positions, is my hon. Friend satisfied that we can reach them quickly, in adequate force in time of emergency?

Mr. Stanley: I assure my hon. Friend that we regularly consider our defence and security obligations towards our dependent territories in relation to the threat as assessed. That process takes place continually.

Mr. Fisher: Will the defence of British dependent territories be influenced by the public expenditure cuts announced last week?

Mr. Stanley: We have already made it clear that a small reduction must he made in the totality of the defence budget this year. Future years will be dealt with in the public expenditure cycle in the usual way.

Royal Ordnance Factories

Mr. Eggar: asked the Secretary of State for Defence if he will make a statement on the future of the royal ordnance factories.

Mr. Pattie: It remains the Government's firm intention to introduce private capital into the operation of the royal ordnance factories, as Sir John Nott explained to the House on 8 May 1982. We hope to introduce legislation after Parliament reassembles in the autumn which will allow the ROFs to operate in a more commercial environment according to the provisions of the Companies Acts, rather than under the Trading Funds Act 1973 as at present.

Mr. Eggar: Did my hon. Friend see the scurrilous and wholly misleading pamphlets issued by the unions at the ROFs during the election campaign? Will he condemn them out of hand? Will he go further and say publicly to

the work force that there is no doubt that the moves announced today, and previously by Sir John Nott, will be in their interests because they will open up new markets for them?

Mr. Pattie: I will gladly say from the Dispatch Box what my hon. Friend has requested. The employment of my hon. Friend's constituents will be better safeguarded on the new basis than it has been hitherto.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Dubs: asked the Prime Minister if she will list her official engagements for 12 July.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others, including one with President Burnham of Guyana. In addition to my duties in the House I shall be having further meetings later today. This evening I hope to have an audience of Her Majesty the Queen.

Mr. Dubs: Is the Prime Minister aware that, as a result of cuts in National Health Service spending, the South London hospital for women, which is the only hospital in this country that provides a full range of acute services by women for women, is under threat of closure? Does not the right hon. Lady owe it to the women of this country to keep that hospital open? Will she arrange for central funding to enable it to survive?

The Prime Minister: As I told the House when I last answered questions, I expect that expenditure on the National Health Service as a whole will be no lower than that announced in the public expenditure White Paper. Indeed, it will he higher in real terms in 1983–84 than in 1982–83. With regard to any particular hospital, including the South London — the question of its closure was raised long before the statement by my right hon. Friend the Chancellor of the Exchequer last week—the usual procedures are being followed and ultimately this matter will come to the Secretary of State.

Mr. Higgins: In view of the Government's consistent support for the Gleneagles agreement, and their clear obligation under that agreement to discourage sporting links with South Africa, will my right hon. Friend take the opportunity today to make it clear that she is opposed to an MCC tour of South Africa?

The Prime Minister: Yes. Such a tour would be contrary to Gleneagles. My hon. Friend the Minister with responsibility for sport has already written to the MCC' to let it know the Government's views.

Mr. Wardell: Does the Prime Minister accept that there is unfair discrimination against the long-term unemployed, who form the only group in our society eligible for supplementary benefit yet not eligible for the long-term rate? If the right hon. Lady agrees that that is unfair, will she reconsider the matter and end that discrimination?

The Prime Minister: No. The long term rate is usually available only to those who are going into permanent retirement. The turnround in unemployment over the year is considerable—about 350,000 leave the register each month. We do not think that the hon. Gentleman's suggestion would be appropriate.

Mr. Hordern: Does my right hon. Friend agree that it would be a good idea if the reasons why local authorities apparently need to borrow so much money were made known earlier so that markets could know where they stand? When will the Government require local authorities to sell some part of the 100,000 acres of surplus development land that they own so that more houses can be built and the construction industry put to work?

The Prime Minister: I have great sympathy with what my hon. Friend says, especially about the disposal of land that has been in the hands of local authorities for a long time. They also have access to capital by virtue of selling council houses. My hon. Friend is right. We do not have the means of controlling local authority borrowing. The extent to which they are borrowing is one of the causes of over expenditure at the moment.

Nuclear Weapons

Mr. Stuart Holland: asked the Prime Minister whether she will seek to negotiate with President Reagan an agreement on joint control of United States nuclear weapons on British soil.

The Prime Minister: I have already reviewed with President Reagan the existing understandings between the United Kingdom and the United States governing the use by the United States of nuclear weapons and bases in this country. I described the effect of these understandings in answer to a question on 12 May and again on 30 June.

Mr. Holland: Is the Prime Minister aware of the great concern inside and outside the House about the lack of transparent agreement on these matters? If, in fact, there can be no guarantee of dual control of these weapons, does she agree that the so-called nuclear defence strategy of the Government will be seen to be neither independent of, nor co-dependent with, the United States, but utterly dependent on President Reagan?

The Prime Minister: If the hon. Gentleman has indeed read the reply that I gave again on 30 June, he will know that joint decision means exactly what it says. It would require the decision of both President Reagan—or the then President of the United States—and the current Prime Minister before any such weapon could be fired. President Reagan has already made that perfectly clear and has said in the United States that it is tantamount to a veto.

Mr. Faulds: Gullible lady.

Mr. Stokes: Is my right hon. Friend aware that while most people are quite satisfied with the arrangements for the control of nuclear weapons here, what does concern them, and concerned them at the last general election, is the utter lack of concern shown by Opposition Members to the huge build-up of Soviet arms facing this country and threatening our way of life?

The Prime Minister: I agree with my hon. Friend. It is NATO that has made extensive proposals in Geneva and, for many years, in Vienna, for disarmament.

Dr. Owen: Do logistic difficulties mean that it might not be possible to deploy Pershing 2 in Germany and cruise missiles in Italy at the end of this year, should it be necessary? Does this not underline the importance of having RAF personnel involved in the dual key mechanism if Britain alone of the NATO allies has to deploy cruise missiles at the end of the year?

The Prime Minister: I am not aware of any such logistic difficulties, particularly with regard to Germany. It is Germany's intention to deploy at the end of the year in accordance with our agreements.

Mr. Dykes: Was not a striking feature of the election campaign the complete public satisfaction and calm on the issue of joint decision-making and supervision? It was not an election issue, despite Left-wing attempts to build it up as such. Does my right hon. Friend agree that public acceptance of an obviously sensitive arrangement that has lasted for many years will continue in the future?

The Prime Minister: I agree with my hon. Friend. The last election showed two things very clearly: first, that the British people believe that Britain's defences should remain strong and part of NATO and, secondly, that disarmament should be on a multilateral, balanced and verifiable basis.

Administration (Scotland)

Mr. Foulkes: asked the Prime Minister if she will consider reviewing the arrangements for the administration of matters affecting Government Departments in Scotland.

The Prime Minister: I am satisfied with the present arrangements and have no plans to review them.

Mr. Foulkes: Does the Prime Minister recall that in her Scottish manifesto she promised to consider further changes to improve the government of Scotland? When does she plan to bring forward those changes, or is this another promise that will be reneged on, like her promise to protect the Health Service?

The Prime Minister: The hon. Gentleman asked about 
arrangements for the administration of matters affecting Government Departments in Scotland." 
I have no complaint about those, but if the hon. Gentleman has proposals to put forward we shall consider them.

Mr. Foulkes: The right hon. Lady said that she would put them forward.

Mr. Canavan: As the Prime Minister was decisively rejected at the general election by more than 70 per cent. of Scottish voters, will she admit that she received no mandate from the people of Scotland, the majority of whom voted for candidates who stood on manifestos containing commitments to set up a Scottish assembly? If the Prime Minister pays any more than lip-service to democracy, will she now take steps to deliver to the people of Scotland what they voted for?

The Prime Minister: On the basis of the hon. Gentleman's criteria, four out of the last five Labour Governments had no mandate to govern England.

Mr. Henderson: Is my right hon. Friend aware that, outside the immediate vicinity of Glasgow, Conservative candidates received more votes than Labour candidates at the recent election? Is she further aware that Scotland appreciates the fact that she has provided not only a most admirable team of Scottish Office Ministers and Law Officers but, just as important, has ensured the continuation of Scottish influence in the United Kingdom Government?

The Prime Minister: I agree with my hon. Friend. We have an excellent group of Ministers in the Scottish Office,


an excellent group of Scottish Members elsewhere in the present Government and a marvellous group of Scottish Members in the House.

Mr. Wilson: Does not the Prime Minister realise that the arrangements that she finds acceptable for the administration of Scottish affairs by a Government who have no mandate from Scotland is not acceptable to the Scottish people? Why is she willing to declare that the rights of the Falkland Islanders are paramount but that the rights of Scots who have voted for self-government are not?

The Prime Minister: With all due respect, the nationalist party did not do very well in Scotland at the general election.

Engagements

Mr. Moate: asked the Prime Minister if she will list her official engagements for 12 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some time ago now.

Mr. Moate: Has my right hon. Friend seen the report that the losses of the National Coal Board are in excess of its reserves, which means that, by most normal standards, that industry is bankrupt? Is it not unacceptable that this great national asset should be a continuing liability to the taxpayer? Is it not necessary that the position should be remedied and that the Coal Board should be brought back to viability as a matter of urgency?

The Prime Minister: Yes. As my right hon. Friend the Secretary of State for Energy announced, the National Coal Board is certainly insolvent although not, as I understand it, technically bankrupt. It is technically insolvent. Government support for the industry is huge. The total external finance for this year is set at £1,201 million and the grants for this year alone amount to £640 million. My right hon. Friend made an announcement that covered this year. It is a protected industry. It is an example of what happens to a protected industry and it is absolutely vital that it should return to viability. That would be very good news for the rest of British industry. When the price of coal is down because it is equated to productive pits, the price of electricity could come down and therefore we would start to save jobs and the rest of British industry would pay lower energy costs.

Mr. Foot: The right hon. Lady talks of viability in the coal industry. Will she confirm that many Governments in western Europe subsidise their coal industries a good deal more than we do in this country and that many of them regard it as a good investment? Will she clear up the confusion caused by her statement last week to the effect that the cuts announced by the Chancellor of the Exchequer were somehow not cuts? Will she confirm that £140 million was taken off the hospital and community health budget; that £30 million was taken off the education budget; that £57 million was taken from nationalised industries' finance; that £40 million was taken from the employment services; £20 million from foreign aid; £16 million from transport and £230 million from defence? Are those cuts or are they not?

The Prime Minister: Where Government Departments, businesses or even ordinary households are overspending on their budgets, the budget has to be brought back within its total. The total budget published in February 1983 for this year is £119·6 billion. That is our target. We have reduced overspending to come down to that target.

Mr. Foot: If those are not real cuts—I gather that that is what the right hon. Lady is trying to tell us—will she tell the Secretary of State for Social Services and the House how the cuts in the National Health Service can be made without cutting people's jobs? Is it not the case that the proposed round of cuts—or whatever she calls them —may involve the loss of about 20,000 jobs? How will she stop that?

The Prime Minister: I expect expenditure on the National Health Service as a whole to be no lower than that outlined in the public expenditure White Paper. It will be higher in real terms in 1983–84 than it was in 1982–83. I understand that the right hon. Gentleman judges the success of a service by the amount spent on it. If that is so, this Government and the last Government have done a great deal better than Labour Governments.
At the last count more than 1,003,500 people were employed in the National Health Service. They include 484,000 nurses and midwives — a number that has substantially increased under this Government — and doctors and dentists. I must also report to the right hon. Gentleman and the House that, much to my regret, the numbers employed in administrative and clerical sections increased during the lifetime of the last Government. On the ancillary side there are 209,000 people employed. There are, therefore, considerable areas for improved efficiency in manpower.

Mr. Foot: Will the right hon. Lady now say whether any jobs in the NHS will be lost as a result of the announcement by the Chancellor of the Exchequer a few days ago; and was that fact known before the general election?

The Prime Minister: As I have indicated, there is already an increased number, even in the administrative and clerical grades — [Hoist. MEMBERS: "Answer."]— which figures we were pledged to reduce under the manifesto before last. We attempted to reduce those numbers by an Act of Parliament, with the aim of taking out a whole administrative layer from the Health Service, and my right hon. Friend the Secretary of State for Social Services—

Mr. Skinner: Come off it.

The Prime Minister: Opposition Members may have short memories, but they will recall that my right hon. Friend announced in February, about four months before the election, that he had appointed Mr. Roy Griffiths to look into management in the NHS and had taken powers to control manpower targets. All that was done before the last election.

Trade Unions (Proposals for Legislation)

The Secretary of State for Employment (Mr. Norman Tebbit): With permission, Mr. Speaker, I will make a statement on proposals for legislation on democracy in trade unions.
I am now able to announce the Government's conclusions following the consultations on the Green Paper "Democracy in Trade Unions" and to outline the legislative proposals I propose to lay before Parliament in the autumn. I am publishing today a paper explaining these propsosals and providing an opportunity for consultations on them.
Numerous detailed and thoughtful responses to the Green Paper were received from employers, employers' organisations and individual trade unions, including some affiliated to the TUC. These confirmed that there is widespread concern about shortcomings in trade union procedures for elections and for consulting their members on major issues, particularly on strike decisions. There is undoubtedly widespread support for legislation to safeguard the rights of members in relation to their unions.
As foreshadowed in our election manifesto, the legislation will cover three main issues: trade union elections, strikes and the political activities of trade unions.
First, elections. The legislation will require elections to the governing bodies of trade unions to comply with the following principles: voting must be secret and by ballot paper; there must be an equal and unrestricted opportunity to vote; and every union member should be able to cast his vote directly. These principles are not a legal straitjacket. They are the minimum necessary to ensure free, fair and democratic elections. Within them, trade unions will be free to constitute their governing bodies in the way they judge will best serve their members' interests, and to decide on the form of ballots.
Secondly, strikes. The consultations have shown continuing concern about the way in which strike decisions are taken. Accordingly, I propose that if a trade union orders or endorses industrial action by its members in breach of their contracts of employment without first consulting those members in a secret ballot, that trade union should lose immunity from the normal civil law consequences of its action. This will give the community more protection against irresponsible industrial action and provide new safeguards for trade union members themselves against being required to strike without their consent.
I also expect in due course to consult on the need for industrial relations in specified essential services to be governed by adequate procedure agreements, breach of which would deprive industrial action of immunity.
Thirdly, the political activities of trade unions. The Government accept that a trade union should be able to adopt political objectives and to set up a political fund. However, I believe that the authorisation of a political fund should be subject to a review by a periodic ballot of the membership. The present members of trade unions should not be bound for ever by a ballot that may well have been taken before any of them were born. I propose that

the 1913 Act should be amended to require that political objectives and funds should be submitted to ballot at least every 10 years.
For some years there has been disquiet over the operation of the system for contracting out of the political levy. I therefore intend to invite the TUC to discuss the arrangements which trade unions themselves might take to ensure that their members are fully aware of their statutory rights and able to exercise them freely and effectively. I hope that the trade unions will be willing to take such steps. If that hope is disappointed, I would be ready to introduce measures, as we made clear in our manifesto, to guarantee a free and effective right of choice.
The events of recent weeks have made it abundantly clear that trade unionists are now insistent that they should have a greater democratic voice in the affairs of their unions, and the Bill which I shall bring forward will respond to that demand.

Mr. Giles Radice: Is the Secretary of State aware that the Conservative party, whose members do not have a vote in the election of their leader, and which is proud of a so-called shareholders' democracy which is totally dominated by a few institutions, is hardly in a position to lecture the trade unions or anybody else about democracy?
Is the right hon. Gentleman also aware that the Opposition are strongly in favour of union ballots but that we believe — [HoN. MEMBERS: "Oh?"] We have been having them all the time for the last 70 years; that is why we are in favour of them. But we believe that it is quite wrong to impose an artificial straitjacket on a variety of democratic practices which suit the needs of individual unions and individual union members.
Does the right hon. Gentleman really believe that his proposals for compulsory strike ballots are workable when such proposals have been repudiated by the Donovan Commission, criticised by most employers and implicitly rejected in his own Green Paper as being impractical and likely in many cases—as, for example, in the classic 1972 rail ballot — to prolong rather than shorten disputes?

Mr. Nicholas Budgen: The hon. Gentleman does not believe a word of it.

Mr. Radice: Oh yes I do. Does the Secretary of State realise, however, that his proposal—

Hon. Members: Too long.

Mr. Speaker: Order. The hon. Gentleman should be given a fair hearing.

Mr. Radice: In particular, does the Secretary of State understand that the proposal to withdraw immunities could greatly harm industrial relations?
On the question of political funds, is the right hon. Gentleman aware that most fair-minded people —I do not include Conservative Members — will see his proposals as a one-sided attack on the Labour party? Would he not be in a stronger position if he had taken steps to make the donations to Tory funds—of £30,000 by Rank Hovis, £33,000 by United Biscuits and £30,000 by Glaxo, to give but three examples—accountable not just to shareholders but to the workers and consumers as well?
We shall oppose these unworkable, unfair and ill-directed proposals when they come before the House in the form of proposed legislation. In the meantime, will the


right hon. Gentleman consult the TUC on the principles of his proposals rather than insulting it from afar as he usually does? Of course, he will say that he has a majority behind him, but it consists of hard-faced men and a few women who look as if they have done well out of the Falklands war. Is the right hon. Gentleman aware that in a democracy majorities should consult? If he believes, as I think he does, that the Polish authorities should consult Solidarity, surely he should follow that principle in his own country. What is sauce for the goose should be sauce for the gander.

Mr. Tebbit: Perhaps the kindest thing to say about the hon. Gentleman's contribution is that he clearly did not believe a word that he was saying. Regrettably, I do not think that he understood a word that he was saying, either. He asked that I should consult the TUC on the principles that 1 have set out. He seems to have forgotten that in January 1983 I published a consultation paper. I invited the TUC to consult upon it and it refused to do so. I am now offering it a second chance of consultation, which I hope it will accept.
The hon. Gentleman followed the famous legal maxim that, in the absence of a case, one should abuse the other side. He said little about democratic elections in trade unions. He slid over the need for trade unions to justify in public their immensely privileged legal status, which is something that companies do not enjoy.
The hon. Gentleman managed, with a great deal of effort, to name three companies which have given £30,000 to the Conservative party. He seems to have forgotten that at a meeting in an elegant, large country house the trade unions hand cheques for millions of pounds across the table, which are picked up at the drop of a hat.

Sir Paul Bryan: If a union's members vote by a majority in favour of a pol:tical fund, would individual members be forced to subscribe to that fund whatever their political views?

Mr. Tebbit: No, Sir, and nor is that the position now in law. The 1913 Act provides specifically that union members who do not wish to pay into a political fund should be free not to do so. The problem is that that Act is not being observed in practice or in spirit.

Mr. John Evans: What evidence is there for saying that?

Mr. Tebbit: Mr. Gavin Laird told the Financial Times that he and his colleagues do everything that they can in their union to make it as difficult as possible for members who wish to avoid paying a political levy.

Dr. David Owen: Having founded the Social Democratic party on the principles of one member, one vote and postal ballol:s—

Mr. Dennis Skinner: What hypocrisy!

Dr. Owen: —and having advocated over two years ago trade union democracy and the need to bring unions back to their members, my right hon. and hon. Friends and I welcome the fundamental aspect of the reform. However, I shall put a number of detailed questior s to the Secretary of State.
First, why has the right hon. Gentleman backed off postal ballots as the norm and gone only for secret ballot papers, bearing in mind that the 1980 Act provides money for postal ballots? Secondly, why has he decided to tone

down his proposals over opting into a political fund? Surely the principle of opting in is right. Is the right hon. Gentleman afraid that that would mean that shareholders would have to opt into making contributions to political parties? Is that why he has backed off his earlier proposals? Thirdly, what does he mean by "political objectives" in the context of a political fund? Does he mean affiliation to a political party?
As six out of 10 trade unionists voted for political parties that are different from the Labour party, surely it is right that their views should now become the dominant factor and that they should not be forced to opt oLt of a political levy. Instead of going for consultations in the way that the right hon. Gentleman has implied, with only the ballot on the political fund being the critical issue, he should return to first principles and support opting in for both shareholders and trade unionists.

Mr. Tebbit: I am grateful to the right hon. Gentleman for his general support of the proposals. If he had been able to persuade his colleagues in the Labour Government's Cabinet to accept the need for these reforms, the Labour party's condition might now be a great deal better than it is. I do not think that postal ballots are the only means of ensuring fair elections. It is open to those concerned to have a postal ballot, and that may be the best way of proceeding. However, it may not be the only way, especially when unions have, for example, widely scattered memberships throughout the world. In those circumstances, a postal ballot may be extremely difficult to implement.
As for opting out of or into levies, I intend to give the TUC a chance to justify the way in which its affiliates operate and to suggest the changes which it might choose to bring forward to offer a free and fair choice. If it cannot justify the present system nor suggest changes, I shall be forced to legislate. Opting in will not be excluded from consideration but, first, let us see how we get on with consultations.
The definition of "political objectives" is contained in section 3 of the 1913 Act. However, I think that it would be useful if we had some further discussion about whether that entirely accords with the modern practice of determining what is or is not a trade union's political objective.

Mr. Tim Renton: First, I thank my right hon. Friend for setting out his proposals, for which Conservative trade unionists have been pressing for many years. Before he proceeds to legislation, what positive consultation—

Mr. David Winnick: On a point of order, Mr. Speaker.

Mr. Speaker: Order. I cannot accept a point of order in the middle of a question.

Mr. Renton: What positive consultation will my right hon. Friend undertake with individual trade union leaders as well as with the TUC, which seems to be totally dyed in the wool on this issue, bearing in mind that those leaders know that the wish of their members is to make the new arrangements workable and practicable as qu Ickly as possible?

Mr. Winniek: On a point of order, Mr. Speaker.

Mr. Speaker: Order. I think that the Secretary of State should answer the question before I take the hon. Gentleman's point of order.

Mr. Tebbit: I am always open to representation from individual trade union leaders as well as from the TUC in speaking collectively for them. I am open also to representations from individual trade unionists. We know that at the last election more trade unionists voted against the Labour party and for the proposals than voted for the Labour party and against them.

Mr. Winnick: rose—

Mr. Speaker: Order. Am I anticipating the hon. Gentleman's point of order by asking for shorter supplementary questions?

Mr. Winnick: On a point of order, Mr. Speaker. In a debate towards the end of the previous Parliament, the hon. Member for Mid-Sussex (Mr. Renton) contributed to it as president of the Conservative trade unionists' association. Thereafter I went to the Library and learnt that the hon. Gentleman has a number of business interests. I returned to the Chamber and raised a point of order, and I raise the same point of order today with you, Mr. Speaker. If an hon. Gentleman speaks on these matters, must he not declare a substantial business interest which, after all, is listed in the Register of Member's Interests?

Mr. Speaker: Order. In answer to the hon. Member, and for the benefit of new Members, the rule is that the interest of every right hon. and hon. Member should be registered. It has never been the practice to declare such interests at Question Time.

Mr. John Evans: First, I declare that I am a member of the engineering section of the Amalgamated Union of Engineering Workers and an officer in the union. [Interruption.] I pay the political levy and have done since I was 16 years of age.
Will the Secretary of State confirm that he is aware that nearly four fifths of all strikes in Great Britain are unofficial and are settled within three working days, and that the second of his proposals will add to the number of unofficial disputes? He says that if a union endorses industrial action it will be in danger of losing its immunity from the normal civil law consequences. The result of the proposed legislation will be an increase in the number of unofficial strikes. Will the right hon. Gentleman confirm that?

Mr. Tebbit: No, of course not. The hon. Gentleman has not understood what the proposal is about or how it will work. If an unofficial dispute arises my proposals will make no difference so long as the union does not endorse it. If the union endorses the dispute, its funds will be at risk unless it undertakes what would appear to be the elementary democratic practice of ensuring that a ballot of those being called out on strike is taken.

Mr. Edward Leigh: Does my right hon. Friend agree that the Labour party seems to be prepared only to accept the system of democracy that operates in the National Union of Mineworkers and in certain African states—one man, one vote, once?

Mr. Tebbit: The sooner all trade unions accept that they should ensure that their members effectively elect their leadership, the better it will be, and the sooner that is done at regular intervals, the better it will be.

Mr. Stan Crowther: Does the Secretary of State appreciate the simple point that true democracy consists of allowing people to make their own decisions about the rules governing the affairs of the organisations of which they are members?
Is he aware that every trade union incorporates in its rules provisions under which a majority of its members can change those rules if they wish? How can he pretend that it is democratic for the Government, or indeed the House, to impose rules upon people when they do not want them? If he is intent on imposing further shackles on the trade union movement, will he admit openly that that is what he is doing and stop trying to shroud the matter in a spurious cloak of democracy?

Mr. Tebbit: The hon. Gentleman would have made an interesting speech had he been a Member of the House before the 1832 Act. Presumably he would have claimed that the House should not engage in democratic practices, such as the secret ballot, and should not listen to anyone advocating it. He seems also to be making the case that we should repeal the Companies Acts and allow shareholders to behave exactly as they wish without any legal restraint.

Sir Kenneth Lewis: Is my right hon. Friend aware that, whatever the views of the Labour party were in the past, it ought to recognise today that what he is saying is reasonable and would be accepted by most people? As to the political levy, would it be appropriate to lay down a rule that the result of each vote should be announced to the country so that the proportion of members for and against paying the levy might be known?

Mr. Tebbit: I take my hon. Friend's point entirely. It is a matter that we could well take into account when we frame the legislation.

Mr. Kevin Barron: The National Union of Mineworkers elected and re-elected me by private individual ballot every two years before I became a Member of the House. Everyone in the NUM has for many years had the opportunity to avoid paying the political levy—very few do, I am glad to say. They have the opportunity of individual ballots all the time. Does not the Minister believe that the Government would be better off today if they were to do something about the criminal levels of unemployment instead of mischief-making within the Labour movement, which can look after itself and has done for many years?

Mr. Tebbit: I take note of what the hon. Gentleman says. When I see that in the north Wales area of the National Union of Mineworkers over 99 per cent. of the members were affiliated to the Labour party and paid the political levy—which suggests that no more than 1 per cent. of them, at most, voted Conservative, SDP, Liberal, Welsh Nationalist or anything else—I find it difficult to believe that it was a completely free choice by the members involved.

Mr. John Ward: Is my right hon. Friend aware that, although the proposals as far as they go are welcome, industry will be disappointed that there has been no


decision to take action to ensure that, once agreements are made between unions and employers, they are kept or union immunities will be withdrawn? Further, where the public sector is involved, there should be some restriction on strikes which hold the public to ransom.

Mr. Tebbit: On my hon. Friend's second point, he will recollect that I have said that I shall be inviting trade unions to discuss with me methods by which we might seek to avoid needless disputes in essential public services. On his first point, of course it is open to both sides in industrial agreements to decide that those industrial agreements should be enforceable at law. Under the 1971 Act, they were presumed to be enforceable at law unless the parties decided otherwise. During the period of that Act's effectiveness, the experience was that virtually every agreement had attached to it the condition that it was not legally enforceable.

Mr. Terry Davis: Will the Government require exactly the same procedure to end an official strike as to call it?

Mr. Tebbit: No, Sir. That is a matter for the trade union concerned. We shall require that a union should not enjoy immunity from the normal civil law —[Interruption.] If the hon. Gentleman would listen for a moment, he might understand. The question is whether a union should enjoy legal immunity for breach of contract. There is no breach of contract once the strike is over and so the question does not arise.

Mr. Eldon Griffiths: May I probe a little further what my right hon. Friend had to say about essential services being offered agreements whose breach would lead to loss of immunity? Which essential services had he in mind? In particular, will he try to include the Health Service so that the cruelties that were perpetrated on the old and infirm against the wishes of most members of NUPE and NALGO shall not happen again?

Mr. Tebbit: It is too early to detail which services might be categorised as essential. My proposal is that we should consult on whether procedural agreements at least should be observed on pain of loss of immunity if they were broken. I believe that the trade unions will recognise the public interest in that matter. There are good grounds for believing that the trade unions understand it, which is demonstrated not least by the fact that they have sought to introduce voluntary arrangements among trade unions for the avoidance of needless public suffering during disputes. Unfortunately, those voluntary arrangements have not always worked, as we saw during the health workers' strike and the recent water strike.

Mr. David Penhaligon: Is the Secretary of State aware that on the shop floor a large number of strikes start with no real involvement of the official trade union structure? Is not the net result of these proposals to tell the official trade unions and the official negotiators to keep out when the strikes start and to allow the shambles of an unofficial strike to become a permanent feature of our industrial relations?

Mr. Tebbit: No, of course not. There is nothing in the proposals to inhibit the trade union leadership from coming in when there is an unofficial dispute to seek to organise. to settle and to ensure that procedures are

observed. The proposals simply provide that, if the union seeks to support such a strike, it will lose its immunity unless a ballot of the members is conducted.

Several Hon. Members: rose—

Mr. Speaker: I propose to call those hon. Members who have been rising in their places.

Mr. Budgen: Does my right hon. Friend agree that if the closed shop were made unenforceable, and if trade union menbers could leave trade unions with which they disagreed, the trade unions would be reformed according to the wishes of their members and not according to the external application of the law?

Mr. Tebbit: My hon. Friend may not have given sufficient attention to the 1982 Act and the provisions that will come into final effect in November next year, when closed shops that have not been supported by a ballot of the members concerned will no longer have legal immunity. That, combined with the measures already undertaken in the 1980 Act, will, I think, ensure that closed shops have to carry the overwhelming support of the members concerned or they will simply disintegrate.

Mr. Harry Ewing: The Secretary of State said that it is too early to give a list of the essential services from which the right to strike will be withdrawn. How does he expect the country to believe him? Is he not refusing to give the answer because included in his hit list is the nursing profession, and the Prime Minister and the Secretary of State are about to perpetrate the greatest act of betrayal of the nursing profession by using the establishment of the review body on nurses' pay to withdraw from the nursing profession the right to strike? Would not the right hon. Gentleman be more honest with the House and the country if today he were to gi%e the hit list that he and his Department must have?

Mr. Tebbit: I am afraid that the hon. Gentleman has slid back into the misleading hyperbole that was the common currency of the Labour party during the election. I have said nothing whatsoever about any proposal to withdraw the right to strike.

Mr. Ivan Lawrence: Is my right hon. Friend aware that his statement will be welcomed by rank and file trade unionists in Burton upon Trent, who are fed up with the lack of democracy in the Transport and General Workers Union? Is he further aware that if Opposition Members had to raise their money by knocking on the doors of ordinary people they might find that the policies which they adopt are more in accord with the wishes of ordinary people?

Mr. Tebbit: My hon. and learned Friend is absolutely right. I recommend Opposition Members and my right hon. and hon. Friends to read the leader of the Daily Mirror of 7 July, which is headed "When will they ever learn?" If ever there was a plea for democracy within the trade union movement from the newspaper that is one of the few friends that the movement has left, that was it. Many Opposition Front Bench Members must echo that view, particularly as they approach the leadership election of their party.

Mr. Eddie Loyden: Does the Secretary of State agree that the trade union movement was formed to protect the interests of the working people and has been responsible for improving their living


standards over many years? Is not the Government's present role to shackle the trade union movement so that they can carry out a campaign against the working class and cut their living standards?

Mr. Tebbit: It is a curious shackle to lay upon a democratic organisation that it should consult its own members.

Mr. John Browne: Does my right hon. Friend accept that many millions of trade union members and their families will welcome the restoration of liberty and democracy to the trade union movement? When my right hon. Friend uses the words "industrial action", does he include strikes, go-slows, works-to-rule and industrial blacking? Will he consider making the accounts of trade unions subject to audit, as companies' accounts are? If he has considered that, why did he not think it advisable to introduce that proposal in this measure?

Mr. Tebbit: On my hon. Friend's first question, the measure will cover industrial action short of withdrawal of labour as well as withdrawal of labour. Secondly, to a large extent, the accounts of trade unions are already governed by both rules and the activities of the certification officer. I have no wish to interfere in their internal affairs other than to the extent that is necessary to ensure that fair elections are held. If those fair elections are held, those who democratically represent their membership must be trusted to look after the accounts of the organisation or to face the members at the end of their spell of office.

Mr. Allen McKay: The Secretary of State said that people who wanted to contract out of the political levy would be able to do so irrespective of the result of the ballot. If the result is negative, will those who want to contract in be able to do so and continue to pay the political levy? If so, is not that another backdoor method of saying that people will have to contract in rather than contract out?

Mr. Tebbit: I hope that I have followed the hon. Gentleman's question. If the political fund is reauthorised and is therefore a properly authorised fund, the only question that arises is the mechanism by which people pay into it. Whether that is contracting in or contracting out, the requirement is that there should be a free, fair, informed and unfettered choice—

Mr. Barron: There is.

Mr. Tebbit: On the contrary. The hon. Gentleman knows perfectly well that that is not so, otherwise trade union leaders such as Gavin Laird would not say that they made it as difficult as possible and the National Association of Theatrical, Television and Kine Employees would not say that it was utterly unworried as long as three years had elapsed during which members were unable to get back the political levies that were taken from them against their will. The one area in which it may be essential to do something to improve the accounting practices of trade unions is in the way in which they account for their political expenditure. It is essential that that should be clean, open and transparent.

Mr. Roger Gale: Will my right hon. Friend acknowledge that much of the legislation is

necessary because it is practically impossible for the ordinary union member to influence a change in his own union's rules? Therefore, will my right hon. Friend assure me, as a member of three trade unions and someone with no business interests whatsoever, that he will include in the legislation provisions to give the ordinary union member the chance to demand of his executive a strike ballot?

Mr. Tebbit: If the governing bodies of trade unions are democratically elected, that is the best way to ensure that the union is run in accordance with the members' wishes. To go too deep in legislation into exactly what the rule book should say would be dangerous and wrong. However, there is no reason why the privilege of immunity from the civil law should be extended to a trade union that pushes men and women out on strike without asking them first.

Mr. George Robertson: Did the Secretary of State notice a few weeks ago that the company that employs the president of the CBI balloted its shareholders about a controversial wage increase for the chairman of that company? The result was 5 million votes in favour of the wage increase and 200,000 votes against. Is that a model for the type of open individual ballot that the Secretary of State is proposing? Does he agree that, unless the Government do something about that bogus type of company democracy, his proposals will be seen for the vindictive and partisan attack on the Labour movement that they are?

Mr. Tebbit: The hon. Gentleman has still failed to understand that the Companies Acts govern companies' behaviour in many areas but that companies do not have extended to them legal immunities for breach of contract. If trade unions were to say that they did not want legal immunity to breach contracts we might be able to regard them in a slightly different light. However, while they have that privilege, they are set aside and above other citizens and it is only right that their affairs should be subject to scrutiny. Above all, it is right that their members should have a right to free and fair democratic elections.

Mr. Kenneth Carlisle: Is my right hon. Friend aware that many union members will be glad that they will soon have some safeguard to help them vote against strike action which they used to have to do at a mass meeting? Is he further aware that that protection against intimidation will be welcomed by many union members?

Mr. Tebbit: I am grateful to my hon. Friend. Once again, he has made an important point with great clarity. It is difficult to find a case of a company intimidating its shareholders into withdrawing their labour or even withdrawing their money.

Mr. Martin Flannery: Is is not a fact that the Government are now so dizzy with success as a result of the general election that they are stretching themselves far beyond the point where industrial peace can be observed? Is not what has emerged today a declaration of war on the unions? Does the Secretary of State remember that it was the trade unions that built the Labour party— not the other way round? The Labour party will preserve those unions as the apple of its eye. Is he aware that today he has launched a recipe for a struggle on a grand scale—not a recipe for industrial peace? Is


he further aware that that battle will be fought in the House and outside? Is he aware that he has launched a recipe for massive industrial unrest?

Mr. Tebbit: If the hon. Gentleman thinks that we are dizzy with success, there are some who would think he was befuddled with failure. When he talks of the Labour party being the apple of the trade unions' eye—

Mr. Flannery: The other way round.

Mr. Tebbit: Even if it is the other way round, I must tell the hon. Gentleman that there is nothing on earth that can preserve a rotten apple.

Mr. Harry Greenway: Is my right hon. Friend aware of the misery that so-called kangaroo courts cause many people? A notable example was the case of a constituent who, at the age of 21, was deprived of his job for ever by a kangaroo court of the Transport and General Workers Union. Will my right hon. Friend consider ways in which to bring kangaroo courts more within the law as there was nothing that Parliament or the courts could do in that wicked and unjust affair?

Mr. Tebbit: My hon. Friend refers to a case with which I am not familiar. However, it is certain that the law now extends much greater protection to those who are dealt with in a kangaroo court way. The final sanction of such a so-called court is to take away the member's union card. There is now considerable protection against such an eventuality.

Mr. Max Madden: By how much will unemployment be reduced as a result of the proposals that the right hon. Gentleman has announced today?

Mr. Tebbit: In so far as it is quite clear that they will have a considerable effect on improving industrial relations and bring about a more responsible attitude towards industrial disputes, whatever effect they have will be positive.

Mr. Winnick: Is the Secretary of State aware that the trade unions were involving themselves in internal democracy at least one century before the Tory party got round to electing its leader? Is he further aware that if he dropped his bigoted attitude and started to realise what happens in the companies that his right hon. and hon. Friends are involved in he would find that, if democracy needed to be developed, it should be developed in the City, in multinationals and the rest where even elementary forms of democracy do not exist?

Mr. Tebbit: Of course, I am prepared to believe that that is the hon. Gentleman's opinion; but it was not the opinion of the electorate on 9 June.

Mr. Skinner: Has it not been typical of the two most recent Tory Governments and at least one earlier one—that between 1966 and 1970—to canvass the idea that the way in which to get the economy right and growing is to attack the trade unions and use them as a scapegoat? Is it not worth noting that when the right hon. Gentleman's predecessor introduced what is known as the "Prior Bill" we were promised that unemployment would go down, whereas it went up? When the right hon. Gentleman introduced another Bill in the previous Government to attack the unions and use them as a scapegoat, we were promised again that unemployment would decrease, but still it rose. What guarantee can he give that, when this

third Bill becomes an Act, it will result in fewer than 4 million unemployed? Can he give such a guarantee? Will he give a guarantee to the miners and many other workers to the effect that, when they go into the pub and buy a pint, they will be allowed to hold a ballot on whether the brewer should be allowed to send money to Tory party funds?

Mr. Tebbit: The hon. Gentleman raises an interesting concept—that it is for the customer to decide what the profits of the company should be devoted to. If he really believes that, he must believe that the customer also has a right to say what the wage earner should spend his wages on. I do not believe that he really wants that.
The measures that I ant proposing today are not about economic policy. They are about something of which the hon. Gentleman has little understanding—democracy.

Mr. Skinner: I have stood in far more elections than the Secretary of State.

Mr. Robert C. Brown: When the Secretary of State imposes what he calls the elementary democratic rights of workers, meaning the right to hold a secret ballot on whether to hold a strike, is he aware that they might exercise that same elementary democratic right not to return to work even though they have been recommended to do so by the unions? Is he aware that there might be some prolonged strikes as a direct result of his proposed legislation?
Is the Secretary of State further aware that there are some people in industry who might not like what he calls elementary democratic rights? The result could be a rash of unofficial strikes. Whatever the purpose of this legislation is, it will make the lives of trade union general secretaries and officers much more difficult as they will find it harder to control dissident elements in their membership.

Mr. Tebbit: If the legislation were to make the life of general secretaries more difficult, that would probably have a good deal of public consent. However, I do not believe that it will, and I do not believe that it is desirable to make their lives more difficult. I want to make their lives easier in that I want them to be assured that they have the support of their membership and the strength that flows from that.
I am not restricting anybody's right to go on strike or to come back off strike. I am saying that a union should not enjoy legal immunity for supporting a strike unless—

Mr. Michael Foot: The Secretary of State is destroying rights that trade unionists have enjoyed for 100 years.

Mr. Tebbit: The right hon. Gentleman, who is in his latter days, should not intervene in matters which he has almost given up any hope of understanding. If he had had as much personal experience of strikes, including taking part in them as me, he might understand the problem a little better.
I propose that a union should have civil immunity for the organisation of a strike only when a ballot has been held.

Mr. D. N. Campbell-Savours: Why does not the Secretary of State legislate for political funds in the case of companies, to be authorised by 10-yearly ballots of shareholders?

Mr. Tebbit: For several reasons. First, I am the Secretary of State for Employment, not the Secretary of


State for Trade. Secondly, there does not seem to be a raging horde of shareholders demanding such action, whereas many trade unionists believe that this should be done, as was reflected in the result of the general election.

Mr. Mark Fisher: In view of the Secretary of State's recent conversion to and passion for democracy, will he include in the legislation a commitment to compulsory secret ballots among workers before plant closures, company mergers, the export of capital from companies and the election of company directors? Or is his so-called passion for free, fair and democratic involvement of workers a one-sided form of democracy—a unilateral form of industrial democracy?

Mr. Tebbit: My view is that those who own assets should have control over them. Therefore, a company's assets should be controlled by its owners, and the unions should be controlled by their members. I am sure that that is right, and I hope that the hon. Gentleman agrees with me.

Sir William Clark: Will my right hon. Friend kill the myth about companies by reminding the House that under the Companies Acts companies must hold an annual general meeting at which shareholders can object to directors' salaries and to donations to charities and political parties? If there is an upsurge among shareholders against their directors making donations to political parties, they have a democratic right each year to voice their antagonism. The fact that at few annual general meetings shareholders object to subscriptions to political parties is proof that shareholders are happy with their directors' actions.

Mr. Tebbit: My hon. Friend is right. Whereas the political levy frequently amounts to as much as 7 per cent. of the trade union subscription, the political contributions of companies are typically never more than one part in 100,000 of the company's turnover.

Mr. Winnick: Further to my previous point, Mr. Speaker, I understand that hon. Members need not declare an interest when asking questions. This is a controversial subject. Several hon. Members, especially Conservative Members, would not deny that they are involved in companies, and they have rightly included such involvement in the Register of Members' Interests. The problem is that some of those companies make donations to the Tory party. By so doing, they show political prejudice against the Labour party. Is not it odd and unfair, Mr. Speaker, that, during exchanges on this controversial subject, Conservative Members can make their points without Hansard showing that they have commercial interests which are against the Labour party? Therefore,

Mr. Speaker, will you reconsider the position and explain why, if it is right for hon. Members to declare their interests when speaking in debate, it is unnecessary during exchanges such as those we have just had?

Mr. Speaker: If the hon. Gentleman thinks it through, he will understand that if every hon. Member were to declare his interest before he asked a supplementary question few hon. Members would be called. All right hon. and hon. Members have access to the Register of Members' Interests, and my previous ruling has been of long standing.

Mr. Radice: Will the Secretary of State answer a few questions about compulsory strike ballots, because he has not been clear? Will they extend to other forms of action, short of strikes? How can he be certain that such ballots will not prolong strikes? Does he not agree that his proposal to withdraw immunity is a built-in legislative incentive to turn all disputes into unofficial strikes? Is he prepared to consult the TUC on the principles of the legislation, which undermine basic union rights and which the Opposition strongly oppose, or will he consult the TUC only on the details of the political fund?

Mr. Tebbit: I thought that the hon. Gentleman had latched on to the fact that I offered consultation on the principles last January, but the TUC said that it did not wish to consult me on such matters. However, I made it plain in my statement that I shall welcome consultations and that I shall be happy to hear the views of the trade unions about the way in which the three main items which were the subject of a clear commitment in the election manifesto on which the Conservative party was returned should be carried out.
As the hon. Gentleman described them as "compulsory strike ballots", clearly he has not yet understood what I said. There is no provision for compulsory strike ballots.

Mr. Ewing: On a point of order, Mr. Speaker. I realise, Mr. Speaker, that you are not responsible for ministerial answers, and the Secretary of State for Employment is the last person for whom I would wish you to take responsibility, because I have great regard for you. During an exchange with my hon. Friend the Member for Sheffield, Hillsborough (Mr. Flannery), the Secretary of State described the trade union movement as a "rotten apple". The entire House heard him say that. Would you, Mr. Speaker, give the Secretary of State the opportunity to withdraw that disgraceful remark? If he does not withdraw it, we must assume that his attack on the trade unions is, as we all suspect, a personal vendetta.

Mr. Tebbit: I am grateful to the hon. Gentleman for giving me the opportunity to make it plain that the rotten apple to which I referred was the Labour party, not the trade union movement.

Northern Ireland Committee

Ordered,
That the matter of the future policy for the administration of salmon and inland fisheries in Northern Ireland, being a matter relating exclusively to Northern Ireland, be referred to the Northern Ireland Committee.—[Mr. David Hunt.]

Mr. Speaker: I understand that motion No. 6 will not be moved. With the leave of the House, I shall put together the Question on the other five motions relating to statutory instruments.

STATUTORY INSTRUMENTS, &c.

Ordered,
That the draft Sheep and Goats (Removal to Northern Ireland) Regulations 1983 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Students Allowances (Scotland) Amendment Regulations 1983 (S.I., 1983 No. 798) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Iron Casting Industry Scientific Research Levy) (Amendment) Order 1983 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Job Release Act 1977 (Continuation) Order 1983 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Redundancy Payments (Local Government) (Modification) Order 1983 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Davie Hunt.]

Orders of the Day — Finance Bill

Considered in Committee.

[Mr. HAROLD WALKER in the Chair]

Sir Hugh Fraser: On a point of order, Mr. Walker. I understand that, because the Finance Bill is so drawn, there is no question of discussing the new clauses. Perhaps you would give us a ruling on that.

The Chairman of Ways and Means (Mr. Harold Walker): The new clauses are out of order because there are no specific Ways and Means resolutions to authorise them. For that reason, I cannot call them.

Sir William Clark: Further to that point of order, Mr. Walker. Could you explain to the Committee, and to me, why it is that there is no Ways and Means resolution, when we have had the previous Finance Bill, to which there were new clauses tabled, some of which were selected for debate? Why is it that this time new clauses would be out of order? Surely, if that is so it should have been made clear to those of us who tabled new clauses when we went to the Table Office. Had we been informed then that new clauses were out of order we would have been saved the bother of tabling them.

The Chairman: The position arises out of the circumstances in which the new Finance Bill has been put before the House, in the wake of the one that preceded the general election. The usual amendment of law resolution — such a resolution appeared in the previous Finance Bill — has been unnecessary for this Bill. For that reason, there are no specific Ways and Means resolutions that will cover the new clauses and enable them to receive the authorisation of Ways and Means resolutions.
In reply to the hon. Gentleman's query as to why he was not informed about this in the Table Office, I am entitled to remind the House that these matters should have been considered by the House when the Ways and Means resolutions were before it, and there was a further opportunity to discuss them on Second Reading.

Sir Hugh Fraser: Further to that point of order, Mr. Walker. I thank you for that explanation, but the matter still seems odd. Clause 15, the clause on DLT, has introduced a new principle that makes nonsense of DLT, which we believe to be a nonsense tax, and now we cannot speak about it at all. This seems a most peculiar way for the Government to proceed.

Mr. Robin Cook: Further to that point of order, Mr. Walker. As you will be aware, I have a separate point of order, which, by arrangement with the Chair, I propose to raise after the procedure motion has been moved. However, I should like to support the points made by the hon. Member or Croydon, South (Sir W. Clark) and the right hon. Member for Stafford (Sir H. Fraser). I do not think that we could have avoided the difficulty in which we are now when the House considered the Ways


and Means resolutions because it would have required a separate and distinct Ways and Means resolution to have provided that new clauses as drafted could be called. I am subject to correction, but I do not think that it would be competent for anybody other than the Treasury Bench to have moved such a resolution.
There is an additional difficulty with the Ways and Means resolution in that the resolution that paves the way for the controversial clauses in the Bill virtually replicates the terms of those clauses and therefore defeats any attempt to table an amendment to the clauses. It is a matter for the House to consider, that having devised a procedure that enables the House to scrutinise, weigh and challenge the legislation brought before it, it is now, in the context of Finance Bills, nearing the point at which it is allowing itself to be bounced into instant legislation that is not subject to the line by line amendment and scrutiny that we intend for the further Bills to which those resolutions are, after all, only intended as paving resolutions.

The Chairman: I understand the concern expressed by right hon. and hon. Members, but the Committee will recognise that this is not a matter for me or the Committee today. The Minister will have taken account of what has been said and will bear it in mind, and may wish to communicate with those who have raised this matter.

The Financial Secretary to the Treasury (Mr. Nicholas Ridley): Further to that point of order, Mr. Walker. I have heard what my right hon. Friend the Member for Stafford (Sir H. Fraser), my hon. Friend the Member for Croydon, South (Sir W. Clark) and the hon. Member for Livingston (Mr. Cook) have said. These Ways and Means resolutions were narrowed to facilitate the particular clauses in the Bill, because this is an exceptional and unusual Finance Bill and there is little time left before it has to become law for the purposes of the collection of taxes. However, I can assure hon. Members that the number of matters left out of this Bill will be the subject of debate in the next year's Finance Bill and the point from which they date can be taken in that Bill. It is not the Government's intention to preclude debate and scrutiny. However, these proposals have to be got through before the House rises, and I suggest that the opportunity for discussing wider matters comes at a later stage.

Ordered,
That in the proceedings in Committee of the whole House on the Finance Bill, Schedule 1 shall be taken immediately after Clause 5 and Clause 15 shall be taken immediately after Clause7.—[Mr. Ridley.]

Mr. Robin Cook: I now raise the separate point of order of which I have given advance notice, on which I am advised of a prospect of success if it is a legitimate point of order, and which I have the temerity to raise knowing that there is now a fresh mind as Chairman of Ways and Means. I submit my problem for the consideration and deliberations of that mind. I apologise to the House that this will necessarily be a rather lengthy point of order, but it is necessary to describe the full Byzantine complexity of the difficulty with which the Opposition is faced. Our difficulty comes in tabling amendments to clause 1 because of the legal convention under which the House operates that only the Royal Prerogative exists to raise

Supply, and therefore it is not competent for the Opposition or any Back Bench Member to propose an increase in taxation or a reduction in tax relief.
In the generality of taxes, this does not give rise to difficulties because that ruling is qualified on the basis that the existing law establishes the status quo of the tax levy. Therefore, if the Government propose a relief that reduces that tax below the status quo, it is then competent for the Opposition to amend a new relief to limit it to any point between the status quo and the proposed reduction. Thus, were the Government to decide that they were in error in doubling VAT and were to propose a reduction of VAT from 15 per cent. to 8 per cent. in their Finance Bill, it would be competent for us, were we to choose to do so, to table an amendment limiting that reduction to, say 12·5 per cent.
There is one exception to that commonsense approach, and that is income tax. The exception arises because the legal fiction is that income tax is not a permanent tax. It may have been with us since the days of Pitt. but it is not a permanent tax. It is an annual tax, and every year the Treasury considers afresh, with careful consideration. whether it requires income tax, and having reluctantly decided that it does, it brings forward a fresh clause giving authority for income tax to continue for a further year. As income tax would automatically lapse without the fresh clause, it follows that there is no law setting out the status quo for income tax as there is with VAT or other taxes.
This legal fiction has certain hilarious consequences. It means, in the context of today's debate, that the Government are not cutting the higher rate bands on income tax by 14 per cent. On the contrary, the Government are imposing a fresh and unanticipated burden upon the higher paid. However, other consequences are rather less hilarious. The Committee is severely restricted in what amendment it can propose to such a proposal. Were the Government to propose to double thresholds for the higher tax bands, and it is not inconceivable that the Government would propose to do so in the future, it would be improper and incompetent for any other hon. Member to seek to reduce that doubling of the threshold.
The Committee would be left with the choice of accepting that doubling or voting against clause stand part. If the Committee were to vote against clause stand part, it might find itself in the same position as that in which the Opposition found themselves with the last Finance Bill in the previous Session. The Committee would also be voting against the clause that contains the authority for the standard rate of income tax. Thus, were the Committee to carry that resolution opposing clause stand part, it would abolish income tax in toto, although that is not what it would be seeking to do.
This problem flows from the legal fiction that income tax is an annual tax. Were the man in the street to be told that income tax is not a permanent tax and that the procedures of the House of Commons operate on the assumption that income tax is subject to imminent abolition, I suspect that he would consider that to be further striking proof of just how out of touch Members of Parliament were with reality. Nor does that accord with the current state of the law. In 1977 and again in 1980 the House provided explicit statutory power for the indexation of income tax, which makes sense only if we assume that income tax is a permanent tax likely to be renewed year by year.
Yesterday the Opposition were advised, contrary to previous advice, that their amendments to clause 1 were in order because of the singular circumstance that earlier this year there had already been a Finance Act which established a status quo on income tax for the current year. The only precedent for that was in 1979 when there were also two Finance Acts. In other words, such a combination of circumstances arises only when a general election intervenes. Sadly, I suspect that an election will not intervene next spring, however desirable it might be. Therefore, it is proper to put this to the Committee and to seek your guidance, Mr. Walker, as to whether the position is satisfactory. I should make it clear that I am not challenging the ruling. Within its premises, the ruling is logical and consistent. Indeed, in its sheer dottiness it has a certain quaint charm. Nevertheless, it is nonsense, even if it is purely logical nonsense.
My questions to you, Mr. Walker, are as follows. First, have I stated the interpretation of the ruling correctly in its full absurdity? Secondly, do you consider this state of affairs satisfactory? Thirdly, what advice can you give me as to the course that I should pursue to find a more satisfactory procedure that would allow the House to carry out the task of scrutinising legislation, which all the textbooks tell us that we possess?

The Chairman: I am grateful to the hon. Gentleman for having given me notice of the point of order. It raises important matters, which have profound implications for the procedures and practices of the House in handling its financial business, but they are not matters for me today. My duty is to deal with the Bill before the Committee and to apply the rules as they stand. The hon. Gentleman, being an experienced Member, knows that he must find other ways of raising the fundamental matters to which he referred. I allowed him to put his case in detail as others may wish to consider his words and to respond to him. Nevertheless, it is not a matter for me today.

Mr. D. N. Campbell-Savours: On a point of order, Mr. Walker. I wondered whether you, as Chairman of the Committee, would allow the Financial Secretary the right to reply to a suggestion that I wish to put to the Committee in the light of the Chancellor's statement last week about cutting public expenditure and the introduction last week of this Bill providing for additional benefits of £400 million.

The Chairman: I cannot see how that has any relevance to the business before the Committee. The hon. Gentleman must seek some other opportunity to raise the matter.

Mr. Campbell-Savours: Further to that point of order, Mr. Walker. As I had not yet made my point of order, I wonder on what basis you could possibly have ruled it out of order. My suggestion is that, in the light of the Chancellor's statement last week cutting public expenditure, the Finance Bill should be withdrawn from the Committee stage in so far as it relates only to 3 per cent. of the population. My point of order to you Mr. Walker, is that the Financial Secretary should be given the opportunity in the House today to make a statement withdrawing this second Finance Bill of 1983 in the national interest.

The Chairman: I do not think that that is a point of order. Perhaps the hon. Gentleman will seek some other way to draw it to the attention of the Financial Secretary.

Clause 1

BASIC RATE LIMIT, HIGHER RATE BANDS AND INVESTMENT INCOME THRESHOLD

Mr. Cook: I beg to move amendment No. 2, in page 1, line 17, leave out `f14,600' and insert '£12.800'.

The Chairman: With this I understand that it will be for the convenience of the Committee to take the following amendments: No. 3, in page 1, line 25, leave out '£7,100' and insert '0,250'.
No. 4, in page 2, line 2, leave out '£14,600', and insert `£12,800'

Mr. Cook: The Committee wil be aware that I quote myself sparingly, but I cannot resist at the outset of our deliberations referring to my intervention last week when the Chief Secretary was moving Second Reading. I said:
Before the Bill goes through the House, can he assure us that he does not intend to come back in the autumn with panic measures to cut public expenditure".
As hon. Members who were present will recollect, I received the following reply:
I hope that panic measures will not characterise this Administration."—[Official Report, 6 July 1983; Vol. 45, c. 283–4.]
I did not have to wait long for the panic measures. [HON. MEMBERS: "They were not panic measures." ] I shall come to the definition in a moment. I did not have to wait until the autumn, as I expected when I made my intervention. It was not even possible for the Bill to get through the House before the Government came forward with measures to cut public expenditure, and we know that they were panic measures. First, we know that the Cabinet was bounced that morning into agreeing to a sum of money without any idea how it was to be found or what would be cut to find it. Secondly, when we pressed the Chancellor at Treasury Question Time that afternoon for a copy of the statement that he was due to make to the House the same afternoon, he said that the statement was not yet written. If that is not evidence of panic measures, I do not know what the Government would characterise as cool, calm and deliberated measures.
There is an entertaining consequence. What panicked the Government and drove them to those measures was their anxiety to convince the City that everything was all right. As inevitably is the case with panic measures, they convinced the City that something was wrong. We understand from the briefing that the Chancellor gave to the press that there were two reasons for the measures—first, to stop interest rates rising and, secondly, to deal with his difficulty in selling gilts on the market. But what happened the next day? Interest rates rose by 0–25 per cent. and the price of gilts fell.
I asked the Chief Secretary that question not to ascertain whether the Government would cut public expenditure in panic or with dignity, but to ascertain whether, in their judgment, they felt that they could afford the tax handouts provided for in the Bill, most notably in clause 1. The answer the next day was clearly that the Government, in their judgment, could not afford the handouts proposed in the clause.
I see from The Guardian today that the Chancellor has been expressing the same view in Brussels. He is quoted as having said:


We will reduce taxation as soon as we believe we have the headroom to do so … But to talk about it now is inappropriate.
The Chancellor has just said that it is inappropriate to talk about reducing income tax, but the Committee is now being invited to consider a measure which, by this clause alone, will result in a reduction of tax of £280 million, all of it going to the better-off section of the population.
On Wednesday we were told by the Chief Secretary that the Government could afford the handouts to the rich. On Thursday the Chancellor told us that the Government could not afford a similar sum to maintain public services such as the health services to the sick and the disabled. On Tuesday, having hit the weak and the vulnerable by cutting their services, the Financial Secretary is presumably about to tell us that the Government can, after all, afford the handouts to the rich. That conjunction of statements is an insult to the intelligence of the Committee.
Let no one be in any doubt that we are dealing with the better-off section of society. Those who are caught by the investment income surcharge, after this clause is agreed, will only be those who have interest-bearing assets worth £70,000. Those people, on the whole, with doubtless the odd exception, are the better-off members of society.
The same is true of those who are caught in the higher rate tax bands. When we debated this matter on 11 May, shortly after the announcement of the election, the then Chief Secretary, who has been summoned to a higher plane, attempted to belittle the income of those who were caught in the higher rate tax bands. He produced the interesting statistic that it would be possible for a married couple, in which both partners were working, to be caught in the 40 per cent. tax band if they both received—and I quote his own definition—"the average male wage".
That is a curious statistical concept. On the whole, one does not find two males married to each other, and even when one does, they are not allowed to claim the married man's allowance. It would be more realistic to contemplate the average couple of a male and female receiving the respective average income, which would leave them comfortably below any of the higher rate tax thresholds. There was, of course, another equally unrealistic assumption in that interesting example, in that the couple received no other form of tax relief whatever, other than the tax allowances. They had no mortgage, insurance or superannuation payments. In reality, virtually everyone caught in the higher rate bands would have at least one, if not all, of those tax reliefs.
The Inland Revenue statistics show that the people in the higher rate tax bands, the people affected by this clause, are the top 4 per cent. of all top taxpayers, and an even smaller proportion of all income earners. They total 820,000. I am indebted to the Financial Secretary for his reply of 11 April, giving a breakdown—as near as we can get one—of what they earn: 200,000 earn over £25,000 a year; 500,000 earn over £20,000; and only 120,000 of them earn less than £20,000. It is not possible to segregate them from the million who earn between £15,000 and £20,000, but as there are only 12 per cent. of the total number in that band, it is reasonable to assume that they are not far below £20,000.
Those sums measure a salary that leaves the recipient, by any normal definition, comfortably off. We could use another measure —a measure that I am sure will hit

home to all members of the Committee—in that each of those whom we are considering and each of those who is affected by the clause earns more than Members of Parliament earn. In saying that, I am not suggesting a new tax principle that the threshold for the higher rate tax band should be set just above a Member of Parliament's salary, although that principle may commend itself to the Committee. I advance the principle because we can now assert with some confidence—

Mr. Ridley: The hon. Member for Livingston (Mr. Cook) is suggesting that Members' salaries should be set just below the higher rate tax threshold. That is how what he says could be interpreted.

Mr. Cook: I suspect that if the Financial Secretary is offering to negotiate with me across the Dispatch Box, I would be well advised to seize what he is offering with both hands, because it is likely to be well in excess of anything that the Chancellor of the Exchequer will allow US.
That brings me to the point that I was coming to: the vigorous and vehement opposition of the present Chancellor of the Exchequer to implementing the proposed increase in salaries of Members of Parliament. [HON. MEMBERS: "Oh."] I see that one or two hon. Members share his opposition to the increase. There is, of course, force and reason behind that opposition, if we accept that Members of Parliament are intolerably overpaid and that any increase would be an offence to human decency. If the Chancellor of the Exchequer urges that view of Members' salaries, he cannot then turn round and say that those who are earning even more than those bloated Members of Parliament deserve our sympathy for the modest incomes on which they are forced to survive, subject to penal rates of taxation.

Mr. Anthony Beaumont-Dark: As the hon. Gentleman has drawn so much attention and expressed so much bitterness to the pay of Members of Parliament, will he say where he stands? Does he believe that Members of Parliament should take a bigger increase than the man in the street or not? The hon. Gentleman seems very virtuous. How virtuous is he for himself?

Mr. Cook: If the hon. Member for Birmingham, Selly Oak (Mr. Beumont-Dark) reflects on what I said, and if he reads it tomorrow in Hansard, he will see that I spoke without a taint of bitterness. Indeed, I find the contradiction into which the Treasury Bench is forced mildly amusing. I accept entirely that Members should get the rise enjoyed by the man in the street, and no more, and should get it each year and not every fifth year.
There are two other reasons why those who find themselves among those 820,000 can live without an extra sou. The first is that they are precisely the people who have benefited most from the tax policy of the last Government. That Government came to power on a pledge that they would take the poor out of tax, and succeeded in doing so only by taking 2 million of them out of work altogether. Those who managed to remain in work, and receive average income, have seen the tax burden go up, not down. A married couple with no children—I take that example to avoid the controversy about child benefits—have seen the proportion of their income paid in income tax and national insurance contributions go up by 4·5 per


cent. By comparison, the married couple with no children earning five times the average income have seen their tax burden, similarly measured, go down. Nevertheless, the latter group is singled out for the most favourable treatment in this Bill, even judged in the context of the predecessor Bill that we considered before the general election.
When we debated this matter on Second Reading, the Treasury Bench attempted to persuade us of its neutrality of treatment of the basic rate taxpayer and the higher rate taxpayer, because they both had increases in the thresholds of 14 per cent. I am sorry to say that that increase of 14 per cent. in both thresholds is not neutral in its effects on the different groups to which it applies. The total package benefits those who are in the higher income groups primarily because the increase in the national insurance contributions does not bite with equal neutrality across all income groups. The operation of the upper ceiling in the national insurance contribution means that it affects least those who earn most.
I am indebted to the Institute for Fiscal Studies for having worked out the real benefit of total Budget package, including the national insurance contributions, the increase in the basic rate threshold and the increase in the higher rate threshold. The figures show that if we take the example of an average household on average income, that household has received from the Budget package 83p real benefit—that is, over and above indexation. It is equivalent to 0·66 per cent.—two thirds of 1 per cent. —of its net income. On the other hand, a household with five times the average income has benefited in real terms from the Budget package by £11·32 per week. That is 2·21 per cent. of its net income. In other words, the households that have done best in the past under this Government's tax policies are the households that do best now, despite the apparent neutrality of the proposals on the tax thresholds.
There is a second reason why we may perhaps withhold our sympathy. The highest marginal rates are no longer those paid by the highest income earners. The highest marginal rates are now paid by those with the lowest income. This Government began their life after the previous general election by abolishing the highest rates. They reduced the 83 per cent. band to 60 per cent. I remember the then Chief Secretary, now the Leader of the House, justifying that cut—and I quote his words—"on humanitarian grounds".
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Following the abolition of the 83 per cent. tax rate there is only one group in society that now pays a marginal rate in excess of 60 per cent. It is not the top deck of income earners; it is the bottom deck. Anyone at the bottom of the income heap who finds that he is subject both to income tax and to loss of family income supplement for each pound paid will now find that he pays a marginal rate of tax on every pound that is earned, not of 30 per cent., nor even 39 per cent., which is the joint national insurance contribution and standard rate of taxation, but 89 per cent., which takes into account the 50p per pound that is lost in family income supplement.
The Government have acted heroically to cut the higher rate tax band. If the clause goes through unamended it will take out of the higher rate tax bands 25 per cent. of all those liable to the tax. Yet at the same time that we have legislation in the Finance Bill to reduce the numbers liable

for higher rates of tax we have seen the Government's policies driving more and more people into the poverty trap so that the numbers in that trap over the past four years have doubled.
I am indebted to the Treasury and Civil Service Select Committee for the calculation that there are now seven times as many households caught paying a marginal rate in excess of 60 per cent., because of the joint operation of the tax system and the means tested benefits that they lose, as there are well-off households paying the 60 per cent. higher rate of tax in the upper higher tax band rate. That grotesque contrast is an offence to reason, to our social conscience and to those caught in the poverty trap from which they find that they cannot escape.
If there were a humanitarian case for cutting those higher rates of tax, plainly there is a far stronger humanitarian case for concentrating our resources to help most those who earn least rather than those who earn most. Here, I am bound to refer to the remarks of the Financial Secretary at the end of the Second Reading debate last week. In the course of those remarks he sought persistently to belittle the sums involved in the Bill. He offered us the calculation that were we to save all the money that is given away in the Bill it would amount to only 0·25 per cent. of an increase in the basic rate threshold.
Let me try to disabuse the Committee of the belief that £280 million is a mere bagatelle. The £280 million which is at stake in the amendment would enable us to increase child benefit by 50p per week. That is the single most constructive and positive way in which we could reduce the poverty trap, as the Treasury and Civil Service Select Committee has pointed out. If that were felt inappropriate, it would enable us to extend the long-term rate of supplementary benefit to the long-term unemployed—those who have been unemployed for over a year, half of whom have been unemployed for over two years—who find that however long they are unemployed they continue to receive the short-term rate of supplementary benefit. Not only would it enable us to do that but it would leave us enough to increase the standard rate of unemployment benefit by 5 per cent.
Alternatively, we could use the money to give the pensioners the 2 per cent. of which they are being defrauded by the fiddle in the uprating calculation this year. Indeed, not only would it give the pensioners the 2 per cent., equivalent in their case to one week's income, it would also leave us enough change to improve the Health Service.
I am conscious that there is no point in my appealing to the heads of Conservative Members with the case for increasing child benefit in order to abolish the poverty trap. It may be no use appealing to their hearts with the case for increasing the pension to improve pensioners' living standards. Therefore, let me appeal to the real decision-making centre. Let me appeal to their guts. Let me put this contrast to them. If we carried these amendments and stopped the Government giving away £280 million to the top 4 per cent., they could save the £230 million of cuts that have just been imposed on the defence budget. Yes, indeed, they could employ 20,000 more soldiers or buy a frigate and a half. That is the scale of the resources that we are discussing this afternoon.
I wince at having to reduce the debate to terms to which Conservative Members can relate, but such a task is necessary to expose the full absurdity of what the Government are doing. In one and the same week they are


telling us that they do not have the revenue to support the welfare services, about which they care, nor to maintain their most cherished defence priorities. At the same time they have the room to disburse this largesse to the top 4 per cent. of the population.
It is only one month since we concluded our last Parliament. In the month in which this Parliament has sat, the Treasury Bench is well on course for sustaining the reactionary record of its predecessor. The previous Government, in their period in office, took from the poor a total of £2,680 million. They did that by taking £2,030 million in social security cuts and by taxing unemployment benefit, which brought them in another £650 million. The Government also cut the higher rates of tax, investment income surcharge, capital gains tax and capital transfer tax. Through the total of those cuts on the wealthy they gave away a total of £2,600 million.
There is a precise correlation between the sums that the Government took from the poor by cutting social security expenditure and the sums that they gave to the rich by cutting the taxes on them. It is a precise correlation which is accurate to within 3 per cent. of both sums. The Treasury Bench is in danger of becoming nothing other than an organised conspiracy to pauperise the poor in order to line the pockets of the rich. The intrusion into our proceedings on the Finance Bill of last Thursday's statement, in which they admitted that they could not find the money to maintain welfare services, exposes that conspiracy to full view. Therefore, the Opposition will take even greater relish in voting against the this squalid measure tonight than we did in voting against it last week.

Mr. J. Enoch Powell: The Committee is engaged in an unusual if not a unique operation, the nature of which was explained in a point of order of remarkable lucidity by the hon. Member for Livingston (Mr. Cook). It is engaged in an operation whereby the Opposition seek to increase the charge upon the public by way of income tax, taking advantage of what, in the course of proceedings upon a Finance Bill, is, as the hon. Gentleman explained, a quite exceptional conjuncture.
There are two reasons which might justify such a step. It was upon one of those that the hon. Gentleman placed the principal weight of his argument, though at several points he glanced at the other ground. It is on the latter that I wish principally to rely in supporting the amendment that he has just moved.
The ground upon which he justified taking advantage of his opportunity was the inequity of the proposed application of a given quantum of resources deemed to be available either for expenditure or for the relief of taxation; and he argued at length the inequity of the method that had been chosen in the clause to which his amendment relates. That point was made by the Opposition at several earlier stages in our proceedings on the Bill and no doubt it will be further illustrated before we vote on the amendments.
However, ever since the Bill entered its Committee stage — and certainly since it received its Second Reading—the other ground has moved sharply into the foreground of the economic scene and of political decision. We have learnt what some of us had been suspecting for months—that the Government's monetary and budgetary calculations are going awry. At the end of April, I invited the Chancellor of the Exchequer to provide

me, in a written answer, with the information corresponding to that which he had provided in a similar answer a year before. The written answer of the year before contained the assurance that in 1981–82 the Government's borrowing
will have been fully funded by sales … to the non-bank private sector."—[Official Report, 16 March 1982; Vol. 20, c. 63.]
In other words, there had been no requirement of borrowing net from the banks in order to meet the Government's needs in the financial year 1981–82.
When I studied the reply that I received from the Chancellor in April, I noted that there was no corresponding observation. I concluded that if he had been able to make so satisfactory an observation, he would certainly not have failed to include it in his answer. So remarkable did I think that, and so significant for those engaged in watching the Government's operations, that I took the liberty of bringing it to the attention of the right hon. Member for Bethnal Green and Stepney (Mr. Shore), though at the time, the right hon. Gentleman may not have been fully seized of the potentiality — or perhaps on ideological grounds, he did not find the observation as useful as I found it.
At any rate, we know that the Government had been finding difficulty in funding their borrowing requirements even before the end of the previous financial year, and have learnt that that difficulty has rapidly increased during the past two months, and is still increasing—so fast that the Chancellor of the Exchequer was fain to come to the House last week to make a statement that must have been disagreeable to him, and even more disagreeable for his Cabinet colleagues to support. It bore witness to the Government's anxiety about their inability to meet mounting requirements without an excess borrowing from the banks.
In that predicament, there were—as always—two courses for the Government to take, or a combination of both: they could operate upon the expenditure side, or upon the revenue side, or upon both. Before I consider what they chose to do—part of it is before us now—I must draw attention to a recurrent feature in recent political history that appears to be building up to the dignity of a law of politics. On three successive occasions, Conservative Administrations have made the mistake of premature reductions in taxation immediately upon being returned to office. There was the episode at the beginning of the Aministration of the right hon. Member for Old Bexley and Sidcup (Mr. Heath)—that of Lord Barber's `jolly jolly sixpence', when the incoming Government rushed into tax reductions — minor, but premature —which preluded the inflationary difficulties that were destined to drive that Government on to shipwreck.
When the Conservative party was again returned under it present leader in 1979, it plunged into tax reductions in its first months of office before even it had laid out the lines of its budgetary policy for the expected four years of Parliament, before even it had taken the measure of the difficulties which confronted it in achieving control over borrowing.
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One would have thought that the lesson the Conservative party was taught in the previous Parliament would at least have carried over to this. One would have thought that the recent experience of the years 1979 to 1980 — which had to be dearly paid for before the


Government could recover the position in 1982–83 — would have been a sufficient lesson. But no. The intoxicating effect on an incoming Conservative Government of success at the polls appears by some law, or at least some governing tendency in politics, to drive them into premature and excessive tax reduction.

Mr. Tony Marlow: Why is the right hon. Gentleman putting this measure across as though it were a sort of tax reduction that the Government have just brought forward? The right hon. Gentleman knows, as the whole Committee knows, that it has been part of the Government's budgetary policy throughout the year. That is the policy on which the Government went to the country and it is a continuation of what the Government have stood for. If there has been extravagance in public expenditure, and if certain programmes have overrun, is it not better that the Government should keep the lid on public expenditure? Otherwise, the lesson to those in spending Departments is that if they spend more, the Government will tax more. Is it not better that the spending Departments should be battened down and kept within their limits?

Mr. Powell: If that line is adopted, it might be argued that one should not increase one's difficulties at the same time by a reduction in taxation. It would be one thing to hold out to the public the prospect that as a reward for fiscal and monetary probity consistently pursued during the lifetime of a parliament, they will be taxed less at the end than at the beginning; but in the previous Parliament it did not work out that way. For the Government to give the public a tax reduction at the start and then tighten up and see whether they can achieve probity seems to be the wrong way of going about it.
The situation is the more remarkable in that we are now going about things the wrong way for the third successive time. The Government are faced with a rapid increase in their borrowing needs which they find themselves unable to fund by borrowing from the public. They know perfectly well that the consequences of that for the future course of inflation—although the reasoning behind that deduction is not always accepted on the Opposition Benches, I notice that the conclusion is accepted implicitly —are that we face the danger of an increase in the level of inflation. Now is exactly the wrong time for the Government to increase their difficulties by persisting in giving tax reductions at the earliest possible moment. It turns out to be a singularly unfortunate moment; indeed, even before the election, it was becoming clear that it would be unpropitious.
The hon. Member for Livingston (Mr. Cook) was right when, addressing himself with some reluctance to what he regarded as the susceptibilities of the Treasury Bench, he pointed out that in the package of £500 million of cuts plus £500 million of sales—the first instalment of what is to come that was revealed to us last week—there was contained an act of choice by the Government. One alternative was to persist with the tax reliefs and try to offset them with hoped-for reductions in public expenditure. The other was to follow the course of probity itself and not to enjoy the tax reductions until they had, according to the Government's philosophy, been earned by the Government's ability to borrow without creating inflation to fund debt.
It will be insufficient excuse for the Government to say, "We didna' ken." It will be insufficient for them to say that

they did not know when they reintroduced the Finance Bill with its tax remissions at the end of the last Parliament. The Government already knew before the general election that they would be in trouble. Yet, knowing that, they repeated their old mistake of premature remissions in taxation and increased the difficulty of funding debt.
There are two sides from which the equation can be handled—from the side of revenue and from the side of expenditure. It is a melancholy fact, but a fact nevertheless, that one of those can be handled much more swiftly and surely than the other. I leave out any political considerations by which the House Committee might be divided; but one thing is certain—one can operate much more surely and rapidly to restore the revenue than one can operate to reduce the total quantum of public expenditure. That should not need stressing after we have lived through a whole Parliament when a Government bent upon reducing in actual as well as relative terms the quantum of public expenditure, found that with all their endeavours they were unable to do so by the end. How much more must it be clear, therefore, that if one has to act speedily and efficiently it is upon revenue that one must act? The Government took the opposite decision. They decided not to act upon revenue. They decided that the reductions in the yield of revenue should be maintained and that an intention to go shopping for cuts across the whole of the public expenditure should be announced—an operation not unknown to Chancellors of the Exchequer and not particularly distinguished for its success in the past.
Whatever objection of inequity can be brought against the clause to which this is the maximum permissible amendment under our rules of order and procedures, it must be said that it is improvident to persist with it in the financial circumstances, of which the evidences are undeniable, and of which admission was made by the Chancellor of the Exchequer in his statement to us last week. So not only those who object to the inequity should support the amendment. Those who know and have frequently explained the dangerous consequences of running into unfunded debt should support the amendment too.

Mr. Archy Kirkwood: I associate myself with the remarks of the right hon. Member for Down, South (Mr. Powell) when he complimented the hon. Member for Livingston (Mr. Cook) on his lucid explanation of the procedural difficulties confronting the Committee. I have seen the hon. Gentleman demonstrate that ability before. It will serve him well when he is required to put an intellectual veneer on the Labour party. It is plainly necessary for someone who is a novice on taxation also to become an expert in procedural Committee party wrangling. I am grateful to the hon. Gentleman for his explanation.
The alliance faces difficulties because we would have preferred a debate based upon our amendments. We were denied that opportunity because of procedural difficulties. I am told by my Chief Whip that I shall have to become accustomed to the difficult choice between following the Financial Secretary or the hon. Member for Livingston through the Lobby. It is a choice between the red devil and the deep blue sea. I can say with confidence that my colleagues will follow the lesser evil and proceed through the Lobby behind the red devil, the hon. Member for Livingston.
You, Mr. Walker, have an unenviable task in identifying about 150 new hon. Members. I am sure that the Government will spare you future difficulties by introducing a sensible electoral system. The first-past-the-post system is as capricious with policies as it is with personalities. If we had a sensible system involving single transferable votes and multi-Member constituencies, you, Mr. Walker, would be spared such difficulties.
Although this is my first speech in the Commons, I am no stranger to the precincts of the Palace of Westminster. Thanks to the philanthropy and the assistance of the Joseph Rowntree social service trust, in 1971 I was granted a fellowship that enabled me to serve under my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) in his previous incarnation as the right hon. Member for Roxburgh, Selkirk and Peebles when he was party Whip between 1971 and 1975. I am pleased to be able to return to the House and to renew many valued friendships among hon. Members, Officers of the House and the staff. It is a great pleasure for me to be here.
I have the honour to represent an entirely new constituency created by the Boundary Commission, which has at least realised the impossibility of having one parliamentary seat encompassing Hawick and Galashiels in an area that takes its rugby almost as seriously as its religion. It is a relief not to have to make the impossible choice between the two clubs. Since the better team—Hawick—falls to me I have the best of the bargain. My right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale may take a different view. The argument will, no doubt, be resolved in the coming seasons on the terraces at Mansfield park and Lauderdale
The two districts of Roxburgh and Berwickshire have been represented in Parliament by remarkable men. The late and much lamented John P. Mackintosh represented Berwick district as part of his former constituency of Berwick and East Lothian, before his untimely death in 1978. He was a man who demonstrated eloquence, learning, wit and integrity. His influence and inspiration extended outwith and beyond the reaches of his political party. He was an inspiration to a generation in Scottish politics.
The by-election after his death was won by the present hon. Member for East Lothian (Mr. Home Robertson) who has quickly and effortlessly assumed the Mackintosh mantle. He too has a reputation for being honest and sticking to his political beliefs.
The Roxburgh district was formerly represented by my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale, who has been a close friend and mentor for 10 years. I look forward to many happy years working with him to further the best interests of the Border area and the country as a whole.
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I could rehearse at some length the considerable beauty and history surrounding the former royal burghs and principal towns of Roxburgh and Berwickshire. The principal towns of Roxburgh are Hawick, Jedburgh and Kelso, and of Berwickshire, Eyemouth, Duns, Churnside and Coldstream. But there are great problems in those areas, and rather than rehearse the more romantic aspects of the areas I shall stress the problems that they face.
My constituency suffers severely from a combination of two disadvantages. First, because of the Government's stringent cutbacks in the industrial area and through the withdrawal of industrial development status from the Border region in August 1982, industry and commerce suffered a severe blow and are at a considerable disadvantage when trying to attract inward investment. Secondly, the public expenditure cuts have savagely attacked the infrastructure of the Border region. I shall make it my business in the coming years to redress that disadvantage. Similar difficulties are being experienced in light engineering, food processing, paper making and the other small craft industries. The agricultural service and fishing industries have suffered severe economic trauma during recent months and years.
In his maiden speech in April 1965, my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale referred to depopulation in the Borders during the census period 1951–1961. I was privileged to serve as a census officer in the Roxburgh district during the 1981 census. It showed a small but significant increase in the overall population of the area. It also showed clearly that there had been a significant decrease in the population in the landward areas of the region. There had been a 6 per cent. increase in the size of populations with 500 souls or more, and a decrease of 11 per cent. in the population in the landward areas. Unless the Government take urgent action, the Border area will suffer a period of rural decline and deprivation.
The Scottish Development Agency has done a great deal of good work, but it is not an appropriate vehicle for the area. It has proven its worth in urban areas such as the central industrial belt, but the Government must face the problems of rural development in a different way. I am pleased that both Strathclyde regional council and the Border regional council now agree that we need a new status of development area. A rural development status should be specially drawn up to take account of the real and urgent needs of the area. During the coming weeks and months I shall press for such an agency.
I wish to say a few words about the business before the Committee. The people in the Border area, almost to a man, are in the low wage-earning category. They are mainly involved with the agriculture industry, which is notorious for its bad wages. The provisions that the Committee is discussing are vital for people in my constituency. The Liberal party has a distinctive policy which it has promoted for many years. The Committee will not be surprised to learn that the Liberal party is in favour of a total reform of the tax, rates and benefits system. We would move as quickly as possible to a system of tax credits, which would remove anomalies and provide a fairer overall system.
A reduced rate band should be introduced to lessen the injustice of those liable to tax at the world record rate, including national insurance contribution, of 39 per cent. The principle of indexation may be reasonable, but although we would accept a 5·5 per cent. indexation, a 14 per cent. indexation on top of the increases in personal allowances is wholly unacceptable. It will shift the burden further from the shoulders of the rich to the backs of the low-paid.
As I said earlier, my Chief Whip warned me that the Liberal party would eventually have to make the choice


between the red devil and the deep blue sea. After due consideration, we shall reluctantly follow the red devil, the hon. Member for Livingston, into the Lobby tonight.

Mr. David Winnick: I congratulate the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) on his maiden speech during the Committee stage of a Finance Bill. He spoke with confidence and fluency. I am sure that he will advance his arguments on many other occasions.
The right hon. Member for Down, South (Mr. Powell) said that he supported the amendment moved by my hon. Friend the Member for Livingston (Mr. Cook). He was critical of the Government and lectured them for not having learnt the lesson of previous occasions when they gave tax relief. I say with all humility to the right hon. Gentleman that he may not recognise enough—he has perhaps always underestimated this in his long political life — the issue of class. The reason why the Government are using the first possible opportunity to reduce the tax rate for the rich—the 3 or 4 per cent. highest earners—is simple and clear. They consider that they have an obligation to such people because they represent them. It does not come as any surprise to Labour Members that the Government are acting as they did previously. Perhaps the right hon. Gentleman underestimates class because of the territory that he now represents. On the mainland class divides the main political parties and is likely to do so for some time to Come.
The House debated the Bill's Second Reading last Wednesday, and the Opposition strongly criticised then, as we have done today, tax cuts of £280 million for the well off. On Second Reading the Government said that the cuts were in order and the country could afford them. Yet the very next day, the Chancellor of the Exchequer came to the House to explain the need for further cuts in public expenditure. That was only a day after the House agreed, on a Government majority, to tax cuts of £280 million for the richest people.
Press reports show that the City is not satisfied with the Chancellor's cuts. The signs are that when the House returns after the recess—or even before it rises—there will be a further statement from the Chancellor to the effect that, because of the state of the economy, there must be further cuts on a much greater scale than those he announced last week. I doubt that any Conservative Member can challenge me on that point. Yet we are today discussing whether the richest 3 or 4 per cent. of taxpayers should receive reductions in their tax liability which total £280 million.
As my hon. Friend the Member for Livingston argued, if such cuts are to be allowed, and if there is to be any justice—not that I expect justice from the Government—we would ensure that the poorest were relieved of much of their tax liability. People on very low incomes should not be in the tax bands at all. The needs of those who live on the smallest incomes are far greater than those of the 3 or 4 per cent. of income tax payers whom we are now discussing.
There is more than a possibility that next year, in 1984, unemployment benefit and perhaps short-term supplementary benefit will not be increased in line with inflation. That will mean hardship not only for the unemployed but for families, for the young children of families where the head of the household is unemployed. What possible

justification, except class politics and the organised conspiracy that my hon. Friend the Member for Livingston correctly pointed out, is there for taking the measures that the Government are advancing again today? The cuts to which I have referred could take place within 12 to 18 months.
Many retired people rely entirely on the state pension and supplementary benefit—I refer to the retired in our community who do not have private provision and who must rely on the amount that they receive from the state. They will receive an increase this year of just over 3 per cent. If there is to be a priority and if there are ways in which the Treasury can help, the pensioners should be assisted.
But we know that those who least need assistance will get it while those in the greatest need will receive no assistance at all. It is likely that some of the people in the latter category will face cuts in their living standards and cuts in services which will undoubtedly affect them in many different ways. Once again a Conservative Government are using their majority in the House of Commons to advance the interests of the richest and most prosperous. I wonder how many Conservative Members will benefit from the measures that will be taken. How many of those Members will vote against the amendment because it would be against the interests of their pockets to oppose what their Government are doing?
We often hear criticism of class politics and of trade union leaders who talk about extra-parliamentary action, but the Government are demonstrating once again that the Tory party represents the interests of the rich and that whenever it has a majority in the House of Commons—after 1979 and now — it will use that majority to advance the interests of its class and the people whom it is in politics to represent. When one considers that all those other people in the community who are in desperate need of assistance will not get anything of the kind, one recognises how justified was my hon. Friend when he said that the Tory party is indeed an organised conspiracy for the rich. I hope that, when we do have a Labour Government, they will use their majority in the interests of the people whom they represent, the overwhelming majority of people in this country, in the same way as the Tory Government always use their majority in the interests of a small, rich minority.

Dr. Jeremy Bray: I congratulate the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) on his maiden speech. It is a pleasure to welcome to the Committee another hon. Member from north of the border and, if I may say so, a chocolate soldier into a later incarnation. It is a breed of which I think we will see increasing numbers. I would regret it if too many Members were to follow his career path, but we shall value him for his uniqueness while he is here.
The Financial Secretary will, I hope, carefully consider the impact of our amendment on one of the most absurd anomalies in the tax system — the reduction in the marginal rate of tax as the income of the taxpayer rises through the upper limit for national insurance contributions. At that point, the marginal rate of tax falls from 39 per cent. to 30 per cent. and then afterwards rises to 40 per cent. Had the Government implemented something like the Opposition's amendment, there would have been a transition to the 40 per cent. rate of tax just about at the point where the national insurance


contributions come to an end. One would have removed that anomaly without raising the difficult issue of principle of whether or not one should integrate national insurance contributions with income tax and so on.
The problem with the higher rates of tax is not simply the cost of changing the system and the much greater cost of changes in the lower rates of tax but the fact that there is a logical progression. If higher rates of tax are set on a certain principle there are implications for what goes on lower down the scale. The Financial Secretary will find that he cannot achieve a sensible structure of taxation lower down unless he is prepared to see changes at the upper end of tax rates.
There is widespread feeling in the Committee that there should be a reduced rate band. I agree with my hon. Friend the Member for Livingston (Mr. Cook) that the first priority should be an increase in child benefit, but after that the priority should be a reduced rate band. That would commend itself to Conservative Members because the benefits of the reduced rate band would be felt all the way up through the incomes scale. It would not simply be an unrequited tax increase for people who moved on to a 40 per cent. rate at a lower level. What is the Government's thinking on the removal of the anomaly of the step reduction in the tax rate as income rises through the national insurance contribution upper limit?

Mr. Ridley: I should like warmly to congratulate the hon. Member for Roxburgh an Berwickshire (Mr. Kirkwood) on his maiden speech. I congratulate him on choosing a debate in which he was the only maiden competing for your eye, Mr. Armstrong, which in itself is no mean achievement. I congratulate him on an attractive and eloquent speech in which he went over the history of the constituencies which, by various amalgamations, now provide for us the pleasure of his company as well as that of the right hon. hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel). I am sure that the Committee will look forward to hearing him again. The hon. Gentleman told us that he had been a sheepdog to the Ettrick shepherd. The hon. Gentleman will have much to do because the shepherd is no longer looking after the sheep. We hope that, with his lack of experience, the responsibilities that fall on him will not prove too onerous.
The hon. Gentleman sought to support the economic analysis of the right hon. Member for Down, South (Mr. Powell) and then went on to advocate the Liberal scheme for tax credits. I shall refer in a moment to those two slightly inconsistent parts of what he said.

Mr. Kirkwood: I wish to make it clear to the Committee that I was following the right hon. Member for Down, South (Mr. Powell) only in so far as he was complimenting the hon. Member for Livingston (Mr. Cook) on the way that he explained the procedural wrangles before the Committee. Thus far I would go, and no further.

Mr. Ridley: I am grateful to the hon. Gentleman for making that point in that it helps me to answer the right hon. Member for Down, South, who advocated two possible grounds on which the amendment could be supported. First, he said that if the quantum of resources were moved from one place to another, that would be more

equitable, the argument which the hon. Member for Livingston (Mr. Cook) deployed with his usual skill. The second ground for opposing the clause, the right hon. Gentleman said, was a monetary reason — that the monetary aggregates were awry and that the Government might even be forced to borrow from the banks.
Those are the grounds which have been argued today, but I do not believe that those who argued the first have the slightest intention of agreeing with the right hon. Member for Down, South about the second, and I know him well enough to believe that, although he argued the second, the economic ground, quite persuasively, he did not share the view of the Labour and Liberal parties about there being something inequitable in what the Government sought to do.
I shall deal with the two grounds in turn. I must at the outset tell the right hon Member for Down, South that the tax reliefs to which he seemingly objects have been in place since April, the start of the financial year, and that people have been receiving in their coding notices both this tax relief — the investment income surcharge — where applicable, and the mortgage interest increase relief, to which I shall come shortly, where applicable. Therefore, those economic forces are already at work.
If one were to decide that for macro-economic reasons those reliefs should not have been made and should now be terminated—if, after the election, that had been the first decision of the Government—one must then ask from what date they should be terminated; and presumably the only fair date would be from August, when the measure becomes law. In that event, the savings would be almost negligible. Even if the termination of the reliefs were backdated to April 1983, the beginning of this financial year, the saving from not making the investment income surcharge reduction, being zero in this financial year, and the saving from the higher rates of tax, being only £125 million, would be under half the total cost of the measure.

Mr. Campbell-Savours: "Only" £125 million?

Mr. Ridley: Much more than £125 million would have to be clawed back in 1984–85. Thus the economic effects of what the right hon. Member for Down, South appears to be supporting would be extremely small and would in effect result in a tax increase by taking away a tax relief which was already in place. Indeed, the chances of recovering £125 million during the current financial year must verge on fine tuning, considering that the total revenues of the Government are well over £100 billion in terms of economic management.

Mr. Cook: The Financial Secretary will recognise that when we press the Government for public expenditure decisions we do not find them so cavalierly dismissing £150 million as fine tuning the economy. He cannot rest any case on the ground that these reliefs have been granted since 6 April, as they have been granted without explicit parliamentary statute. We are now debating that statute and coming to a conclusion on it. Parliament is being placed in an impossible position in being asked that the Committee should agree to continue the reliefs when, without the authority of Parliament, the reliefs have been in operation for the past three months.

Mr. Ridley: I was dealing with the criticism of the right hon. Member for Down, South about the monetary


consequences of the clause. The figure is not £150 million but £125 million, which is the most that could be clawed back towards the end of this financial year. Although I do not suggest that that is a trifling sum, in terms of economic management it is fine tuning; £125 million against a gross national product approaching £300 billion is well within the definition of fine tuning, first eloquently advanced by that well-known Socialist Brian Walden when he was a Member.

Mr. Campbell-Savours: The British people would say that that money would be better used in retaining public expenditure on the NHS, instead of using it to cut taxes in this way. Is the right hon. Gentleman not aware that the people support our case and oppose his?

Mr. Ridley: Those who, like the hon. Member for Workington (Mr. Campbell-Savours), believe that the people of Britain support the Labour party have had a rude knock in the last month or so. The hon. Gentleman, who was not in his place for some of the debate, may not be aware that I was dealing with the point made by the right hon. Member for Down, South. I now come to the argument advanced by Opposition Members.
The spokesmen for the Liberal and Labour parties will not remotely quarrel over a reflation of £125 million, if that is how it can be described, for economic and monetary reasons. They have been demanding far greater reflations than that. Indeed, the Liberal party wants reflation of about £11 billion and, as usual, Labour wants double that. I should have thought, therefore, that it would have got a grudging and minor welcome for monetary reasons from the Opposition.
It is clearly not that which worries them, and therefore the three Opposition parties would be uneasy bedfellows should they find themselves in the Lobby voting against the Government, because they do not agree about the reasons for being there. The reason for the Labour party's opposition to this proposal is that Labour Members feel that it is inequitable that these tax cuts should be made at a time when spending cuts must be increased. I shall come to their argument of substance, but first let us consider what they have proposed.
The hon. Member for Livingston is in some difficulty about the amendment but, as he pointed out, by a freak he can break out of that difficulty in the circumstances of the Bill and, as he put it, feel free to amend the clause as he sees fit. He therefore suggests that the thresholds for all higher rate bands should be cut back from the projected £14,600 to the £12,000 existing before the Budget. On the other hand, he would leave the band widths between the different higher rates as proposed in the Budget.
The effect of that is that for the 40 per cent. tax rate there is no increase in thresholds proposed; for the 45 per cent. band rate, there is a 2 per cent. increase in thresholds; for the 50 per cent. band there is a 4·7 per cent. increase; for the 55 per cent. band it is 7·1 per cent.; and for the 60 per cent. band it is 8·6 per cent. In other words, the hon. Member proposes that by far the biggest increases in relief should go to those with the highest incomes among the highest rates. And for those on the lowest of the higher rates—that is, 40 per cent.—there should be no increase, not even indexation. That is what the amendment says.
Let us compare the rates proposed in the amendment with the rates that were bequeathed to us. The threshold

for the 40 per cent. tax rate is 8 per cent. lower, as proposed in the amendment, than when the Labour Government last introduced a Budget. It is minus 2 per cent. for the 45 per cent. rate, plus 14 per cent. for the 50 per cent. rate, plus 40 per cent. for the 55 per cent. rate and plus 56 per cent. for the 60 per cent. rate. The effect of the amendment is a sharpening of the lack of progressivity between the 40 per cent. rate and the 60 per cent. rate.

6 pm

Mr. Straw: The Financial Secretary advanced this argument on Second Reading and, with respect, he was no more convincing then than he is now. It is not significant to make a direct comparison between thresholds now and the thresholds in 1978–79 because, as he well knows, the rates have changed. The rates in 1978–79 were significantly higher than they are now.
I ask the right hon. Gentleman to address himself to the argument of my hon. Friend the Member for Workington (Mr. Campbell-Savours). How can he justify spending even £125 million on those who have already benefited by substantial tax reductions over the past four years, the richest in our society, when the Government are cutting the same amount from the Health Service moneys, which will hit the poorest and the sickest in our society? How can he justify that on the ground of morality or that of fairness?

Mr. Ridley: I am coming to the latter part of the hon. Gentleman's question. As for the former part, I must tell him that he is wrong, as was the hon. Member for Livingston when he interrupted me on Second Reading. It is true that the Labour Government had absurdly high rates of income tax that went up to 83 per cent. They also had exactly the same rates that we have now—40–45 per cent., 50–55 per cent. and 60 per cent. My argument about thresholds, and the comparison that I have made between thresholds in 1978–79 and those that currently apply, may be directed precisely to those who are paying income tax that is levied at between 40 per cent. and 60 per cent. For those who are on the 40 per cent. rate, the threshold would be 8 per cent. lower in real terms if the amendment were accepted.
If the Opposition wish to obtain £125 million this year, or more in a full year, they will be increasing the tax on those in receipt of middle incomes who are paying 40 per cent. income tax. These are people who are earning between one and three quarters and two times average earnings. If we are to index tax thresholds for those with that sort of means, the vast bulk of the yield, even that from the amendment as proposed, will disappear. It would be very much less than £125 million.
It has been proposed that we should take whatever sum can be gained by implementing the amendment we know what order of magnitude that would be but we are not arguing about that—and use it to increase the short-term rate of supplementary benefit for those who are unemployed by advancing the time when the long-term rate is introduced. The hon. Member for Livingston railed against the unemployment trap. If he is to increase taxation at whatever level to enable benefits to be increased, the only conceivable consequence is that he will make the trap more difficult to avoid. He has given a good example that was based on the best of intentions. By increasing taxation and using the additional revenue to increase benefits, he is advocating making the trap wider. He must think again


about that approach. The right approach is to increase personal allowances with every penny that can be found from public saving.

Mr. Cook: The right hon. Gentleman will recollect that I suggested a variety of ways of spending the money with great effect. The first option in my list was increasing child benefit. That is not a means-tested benefit, and to increase it would diminish rather than increase the poverty trap. It would mean that the reduction of people moving from unemployment into employment would be lessened. Lastly, I asked the Financial Secretary to explain when fine tuning stops and essential economic judgment starts. Is that stage reached between the £125 million that we are discussing and the £500 million which drove the Chancellor of the Exchequer to make a statement in the House to calm the City markets last week?

Mr. Ridley: The hon. Gentleman will remember that my right hon. Friend's statement concerned £1,000 million, which is much more significant than the sum which we are discussing. We are talking about monetary consequences and Opposition Members must understand the difference between monetary arguments and arguments that are based on what is equitable in taxation. They must try to separate those arguments.
The hon. Gentleman suggested increasing child benefit. That would benefit rich parents as well as poor parents. If the poverty trap and the unemployment trap are the central worries of Opposition Members, the answer is to increase the thresholds in every way possible. That is what my right hon. and learned Friend the previous Chancellor of the Exchequer did in his Budget. He concentrated all the cash that he could on increasing thresholds. He explained that if that approach were to be equitable it would necessitate increasing all thresholds throughout the tax system. I remind the Committee that when there was a difficulty in 1981 my right hon. and learned Friend could not raise thresholds for anyone. I remember that there was much protest and concern about that. When there is a good year, it must be right to increase thresholds by an identical amount for all classes of taxpayer.

Mr. Straw: I have now had time to recover from the shock of hearing that this is a good year. If it is so good, will the right hon. Gentleman confirm that there will be no more announcements of public spending cuts for this financial year?

Mr. Ridley: I was talking about the Budget which my right hon. and learned Friend the previous Chancellor of the Exchequer introduced, when it was possible to increase thresholds by 14 per cent. across the board. I was advancing the argument in the context of the relief of poverty. The best way of helping those at the bottom of the scale is to remove them from income tax thresholds. That is my answer to the hon. Member for Motherwell, South (Dr. Bray). If thresholds are increased, many families are taken out of tax completely and more help is given to those on the lowest incomes. Those who benefit from reduced rate thresholds are in many instances not breadwinners. They are often not the heads of families who depend upon their income to sustain their families. The Labour party and the fiscal experts who have studied this issue will, I think, agree with that priority.
It has been suggested that in some miraculous way the revenue which we are seeking to take from the taxpayers should by sleight of hand be switched into some other activity—higher public spending.

Dr. Bray: Before the Financial Secretary moves on to public spending, will he answer the point about the anomaly of the reduction in the marginal rate of tax on national insurance contributions when people's incomes rise above the upper limit for national insurance contributions? Does he agree that the anomaly could have been removed if he accepted that the 40 per cent. tax band, as proposed in the amendment, had started at about that point?

Mr. Ridley: To remove that anomaly—I accept that it is, in a sense, an anomaly—would probably involve the abolition of the upper earnings limit for national insurance contributions. It would not be suitable to do that in a Finance Bill. It would require a national insurance Bill. The hon. Gentleman must remember the objections to it. The national insurance contribution is, I confess, a compulsory payment which entitles people to the benefits of the social security system. Therefore, if everyone is to pay a certain amount to qualify for such benefits, removing the upper earnings limit would make it into a tax.

Dr. Bray: I understand that there are points of principle on which different views are taken. Nevertheless, the anomaly could be removed if the Government arranged for the 40 per cent. tax rate to start near the point where the 9 per cent. national insurance contribution, in addition to the 30 per cent. rate, ceased. This could be achieved easily by incorporating within the Finance Bill a measure such as the one that we have been discussing.

Mr. Ridley: I accept that that would be possible, but one would then have to look at the distribution effects. That has not hitherto commended itself to any Government. Of course it is possible to do as the hon. Gentleman suggests.

Mr. Marlow: Perhaps I can help my right hon. Friend. It is not as simple as the hon. Member for Motherwell, South (Dr. Bray) makes out. Many other things, including the parental contribution, make an impact on people on those income levels. Many parents make the parental contribution, which is a type of tax which comes in at that income level. It is not correct for the hon. Gentleman to say that if we went in the direction he suggests everything would be fine, easy, fair and balanced. There are other considerations within the tax system which would make it not so.

Mr. Ridley: I accept what my hon. Friend says, but in suggesting any tax reform one must not be carried away by the beauty or simplicity of one's curves and profiles. One must always consider the effects on the groups involved. Some gain and others lose.
The right hon. Member for Down, South talked about the quantum of resources. I do not believe that he would regard it as a quantum of resources—be it £125 million or whatever—that can be suddenly plucked from a tax relief. I say, almost in parenthesis, that we were pledged to maintain this relief. We fought the election on the promise to bring in the Finance Bill with this clause in place. To resile from that now would involve a breach of promise.
We cannot turn that money, which is working through the economy and is in people's expectations and calculations, into cash which is available to be spent—

Mr. Campbell-Savours: rose—

Mr. Ridley: Let me complete my sentence—even if that was what the Government sought to do. That is totally irrelevant, because the National Health Service has not suffered a cut, as we have so often pointed out. The National Health Service was given an increased cash limit for this financial year. It showed every sign of exceeding that cash limit. Therefore, my right hon. and learned Friend felt that it was right to cut the totality of public expenditure to the levels which were agreed by the House when it considered the expenditure White Paper.

Mr. Straw: Does the Financial Secretary accept that the hospital service and all the health services, other than the family practitioner service, are suffering cuts? The hospital services' budgets, which are not overspent, will be cut.

Mr. Ridley: I asked the hon. Gentleman to address detailed questions about the Health Service to my right hon. Friend the Secretary of State responsible for it. I believe, Mr. Armstrong, that I deserve some protection. We are now debating higher rates of taxation rather than spending on the general practitioner service. We are not suggesting cuts in the Government spending programme as a whole; we are merely suggesting returning them to the course set and approved by the House.
I hope that, with the full answers that I have given to the many points, disparate and conflicting though they are, the Committee will feel that it is right to allow the clause to remain part of the Bill and to reject the amendment.

Mr. Jack Straw: I begin by congratulating the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) on his interesting and eloquent maiden speech. My hon. Friend the Member for Motherwell, South (Dr. Bray) referred to part of his background as a "chocolate soldier" and I hope that it is not being too indiscreet if I relate other aspects of the hon. Gentleman's background that may be of interest. I understand from my hon. Friend that the hon. Member for Roxburgh and Berwickshire was a member of the general management committee of the Edinburgh Central Labour party. While still having his Labour party ticket in his back pocket, he went to work for the right hon. Gentleman, the leader of the Liberal party. Only subsequent to that employment did the hon. Member for Roxburgh and Berwickshire finally decide to hand in his card.
It is customary, when acknowledging maiden speeches, to be complimentary. I hasten to add that, in any event, we should have been complimentary about the hon. Gentleman's speech. Such conventions do not apply, however, when one is commenting upon speeches from old hands such as the Financial Secretary. I noticed that the hon. Gentleman joined all my hon. Friends in the feeling of incredulity at the Financial Secretary's insensitivity, at the trivial way in which he dealt with the points that have been raised, and his cavalier refusal to address himself to the two central issues at the heart of the debate. First, in terms of economic and financial policy and given the parameters that the Government have set themselves, is it sensible for the Government to be giving

away major tax handouts to those who, self-evidently, do not need them, thereby boxing themselves in even more in economic terms?
Secondly, in moral terms, if there is this money within the economy to give away, is it fair and justifiable to use it on those people who again self-evidently, need it least, when other major services and groups of individuals are crying out for money and when many major services, including the National Health Service, are suffering an absolute cut in resources to be allocated to them for this year?
The debate and the events of the past two weeks have revealed to us all the extent of the profound change that has occurred in the modern Conservative party under the Prime Minister's stewardship. In the old days, when the Conservative party was run by those who are now pejoratively described as "grandees", although there was a major difference of ideology across the Floor of the House, there was an appreciation and knowledge of the condition of the poorest and most vulnerable in our society. Based upon that appreciation, comparison and a sense of fairness were factors that weighed heavily in the balance when decisions came to be made. However, today all that has changed. Of course, we all acknowledge that many Conservative Members are desparately worried about what it is like to bring up a family on £60 or £70 a week. Many more show compassion in their dealings with individual constituents. However, to be compassionate in policy terms is to be wet, and to be wet is to suffer the greatest damnation of all in the modern Conservative party.

Mr. Nicholas Soames: Rubbish.

Mr. Straw: If it is rubbish I invite the hon. Gentleman to vote with us.
Institutionally, in the modern macho Tory party there is no room for compassion or the appreciation of the appalling condition of many of our people. The Government do not wish to know about that condition. When they are forced to know, they do not wish to care. That can be the only explanation for the brutal remarks of the Chancellor of the Exchequer last week about the need to cut unemployment benefit and with it short-term supplementary benefit. If he and other Tory Members thought for a moment, they would realise that it is virtually impossible for a couple to subsist on unemployment benefit of £43·75. People have to live on that amount for a week. It is less than is often spent when Members of Parliament are taken out by journalists to lunch in the west end or the City. I do not exclude Opposition Members any more than I exclude Tory Members from that. Does any hon. Member believe that he could, with all the trimming and cutting in the world, live on £43·75 a week? The answer is that most of us would find it difficult to live on £43·75 a day. Tory Members would find it difficult to live on £43·75 for two or three hours. That is the reality of many Tory Members' incomes.

Mr. Marlow: Come off it.

Mr. Straw: That is the reality. Those who earn £40,000 and £80,000 are about to be given tax handouts of more than £20 a week.
The truth is that the Chancellor refuses to contemplate what it is like to be poor and out of work. He refuses to contemplate what it is like to be poor and in work. He


refuses to contemplate the condition of a couple in my constituency of Blackburn who came to see me only a week ago at my surgery. That family had a total income of £68 a week. The man had to take two buses to work and two buses from work at a total cost of £6·50 a week. Because the family could not make ends meet, that man now has to walk one way to work—five miles not only in sunshine but in rain and hail. That is the reality of poverty in Britain and of the poverty to which the Government have reduced people.

Mr. Marlow: The hon. Gentleman has been savage in his attack on the Government, particularly my right hon. Friend the Chancellor of the Exchequer. My right hon. and hon. Friends wish, probably more than the hon. Gentleman, that the poor and needy in society had more money and more resources, and more to spend per week, but before they can get those resources, we have to create wealth. If the hon. Gentleman addressed himself to creating wealth, he might get somewhere.

Mr. Straw: I am delighted to hear that. However, the hon. Gentleman knows only too well that people are judged not by their words but by their deeds. The serious point that was lurking behind what he said was that the tax cuts are needed to provide incentives for entrepreneurs to work harder. However, there is no evidence to support that theory. The period when we had the most rapid economic growth since the war, as Mr. Douglas Jay said in a debate in the House on 9 March, was when we had the highest rates of tax at the higher level. The period when we had the most catastrophic decline in the British economy in this century coincided with the period when taxation on the higher rates was cut.
If the hon. Gentleman wants to help the needy and poor in our society, there is £236 million on the table. The choice is stark. I invite the hon. Gentleman to think about it. Do we give it to those who have already received the largest tax cuts of all over the past four years, who, even if they are denied the proposed tax cuts, will still uniquely among taxpayers have a tax burden that is lower than it was in 1978–79? Alternatively, do we give it to those in work whose tax burden has increased by one fifth or more and to those out of work whose living standards have collapsed, not only because they have been forced out of work but because the Government abolished earnings-related supplement and held down the real level of benefits?
That is the choice. The problem for hon. Members such as the hon. Member for Northampton, North (Mr. Marlow) and the Government, particularly the Chancellor and the Financial Secretary, is that they always refuse point blank to make the connection between the decisions that they make one day and the plight and poverty of so many of our people. Unemployment benefit must be cut because there is no money. The National Health Service must be cut because there is no money. Education must be cut because there is no money. The local authorities must be cut because there is no money, but suddenly the Government can find the money—hundreds of millions of pounds—to pay for substantial tax reductions for the wealthy. It will not do for the Financial Secretary to go through his usual manoeuvres to try to trivialise the amount involved. The Chief Secretary told us only last

week that the total net cost of the Bill for this year is £236 million. On any basis, £236 million is a great deal of money.
It is a further sign of the closed minds of the new Tories that they regard—certainly the Financial Secretary does —the £236 million as a completely different kind of money. In fact, he regards it as being hardly money at all compared with the money that is needed to be put into the Health Service or to pay for an increase in child benefit. He uses that warped logic to avoid having to convince himself that there is a choice and that the money could be spent in other ways.
My hon. Friend the Member for Livingston (Mr. Cook) went into detail about the way in which, last Wednesday, the Financial Secretary tried to trivialise the total involved and told the House that if we used it to cut the basic rate of tax, it would result in a cut of only one quarter of 1p in a full year.

Mr. Ridley: Hear, hear.

Mr. Straw: The Financial Secretary is cheering the remarks that he made last week. He went on to say with oozing complacency that if we had used the money in some other way, it would not have had a dramatic effect. Where has the right hon. Gentleman been? Does he have no idea of the effect that cuts of half the sum of £236 million will have on the NHS? When I saw the chairman of my regional health authority yesterday, the North-West regional health authority, he was in no doubt that his budget is being cut by 2 per cent. The people there have got out their calculators and know how much is coming off their capital and current programmes. They know how many people they will have to get shot of over the next year. Were it not unparliamentary, I would say that it was a lie, but it is certainly a deception and a fraud for the Financial Secretary and anybody in the Government to suggest that no cuts are taking place. Of course there are cuts. They know very well that that is the reality.
I asked the Financial Secretary where he had been. He knows that the money could be spent on restoring cuts in the NHS. He knows that if the money is not spent on it, many hundreds and thousands of jobs will be lost, many thousands of patients will suffer and he will not know whether some patients will die, yet he can stand there and say in the face of NHS job losses and deterioration in patient care that the expenditure of £236 million will not have a dramatic effect if it is spent elsewhere. If it is not spent elsewhere, it will have a dramatic effect. Moreover, it will illustrate the Financial Secretary's incomprehension and ignorance of the margins that people live on.
When the Financial Secretary discussed how the money might alternatively be used, to trivialise the amount he suggested that if it were used on child benefit, it would be raised by only 40p a week. That is a lot of money to many families. It could buy two loaves in the stale bread shop that has been opened in my constituency to cater for the unemployed — [Interruption.] The hon. Member for Crawley (Mr. Soames) is tut-tutting. I should be glad to take him round the shop. The unemployed and the poor queue up there every morning because they cannot afford to buy fresh bread. It is no use the hon. Gentleman shaking his head. That is the reality of the poverty to which the Government have reduced people. I should be delighted to give way to the hon. Gentleman if he wishes to


intervene. He does not. He does not like the truth of the grinding poverty to which the Government have reduced people.

Mr. Winnick: My hon. Friend's point is important and it is quite clear that many Conservative Members—not just the hon. Member for Crawley (Mr. Soames)—do not understand or wish to understand the poverty and near poverty that my hon. Friend referred to. An extra 40p to 60p a week is a great deal to some of our constituents who are living on the barest minimum. Surely that is the accusation that we are making against the Government today.

Mr. Straw: I entirely agree. I am shocked by the attitude of the hon. Member for Crawley. In former days, he would have been regarded as a grandee and shown some compassion. However, it is obvious that he also has been taken over by the new macho Tory party. He refuses to accept the truth of what I am telling him has happened in the past four years. If a family saves 40p a week, it can buy a pair of cheap shoes for the children every three months. Perhaps the hon. Gentleman has no idea of how quickly children's shoes are worn out. The 40p would be most helpful.
When the Financial Secretary discussed such an increase, he said that the objection to spending money on child benefit was that it would also benefit the rich. We are on to something here. If the Financial Secretary wants to spend money so that it benefits only the poor, I assure him that the Opposition can make many suggestions. We object to spending that benefits only the rich. No spending can be less equitable in present conditions when 3·5 million people are unemployed than the spending of £236 million on those who need it least.

Mr. Campbell-Savours: Is not one of the more interesting aspects of the debate the fact that when the "News at Ten" headline bulletins are broadcast tonight there will be no mention of what really matters—how the Committee will divide on the use of these moneys? The Chief Secretary knows that, is using that fact and hiding behind it to press the measure through. "News at Ten" will no doubt comment on silly little news items that have no bearing on the real debate in society. Would not society be far better if the news media concentrated their attention on what matters and the inequitable arrangement of the division of wealth rather than on nonsense?

Mr. Straw: rose—

The First Deputy Chairman of Ways and Means (Mr. Ernest Armstrong): Order. I hope that the hon. Member for Blackburn, (Mr. Straw) will address himself to the amendment and not follow that line of argument.

Mr. Straw: I share my hon. Friend's anxiety. Far too many newspapers last week failed to make the connection between the sick and needy being hit to allow for £236 million-worth of tax cuts for the rich.
If the moral argument falls on deaf ears—it is clear that it does—I hope that the type of argument that the right hon. Member for Down, South (Mr. Powell) advanced about the wider economic arguments will not. The Government have got themselves into a terrible jam on public expenditure, not because vast overspending by public authorities has suddenly been discovered, but because their pre-election public expenditure White Paper

did not and could not add up. It was a pre-election fraud and we told them so. The hon. Member for Crawley and his right hon. and hon. Friends cannot say that they were not warned. Mr. Joel Barnett, our distinguished colleague, the loss of whom we were lamenting only last week, accused the Chancellor of the Exchequer in terms of fiddling the figures. In an intervention, on 9 March, ray hon. Friend the Member for Oldham, West (Mr. Meacher) asked the then Chief Secretary who is now the Home Secretary whether the Government were coming up with completely unrealistic estimates for the contingency reserve that had been cut by £1 million and the general allowance for shortfall that had been increased to £1·2 billion. That action has cut the contingency reserve from £2,400 million last year to a mere £300 million this year. The then Chief Secretary replied:
I see no grounds for thinking that the plans are unrealistic … because they are too heavily dependent on shortfall which might not arise or because too little has been set aside for contingencies. I am satisfied that the plans for 1983–84 are robust and we do not expect them to be exceeded." — [Official Report, 9 March 1983; Vol. 38, c. 854.]
The Prime Minister confirmed in a television interview on 5 June that the plans were robust and would not be exceeded. The Government knew that their figures did not add up. They knew, as do every Government, that it is impossible to estimate accurately the cost of demand-related services such as the cost of benefits and prescription charges. That is precisely why there is a reasonably sized contingency reserve. That is the way in which the contingency reserve has been used every year since public expenditure planning came into vogue. The Government wanted to avoid saying that because they did not wish to give the impression that they would cut public expenditure — which was their true intention — or increase planning totals so as not to offend their friends in the City. They have now been hoist by their own petard.
If the Government refuse to accept the moral case that the Opposition have made, it is utter madness for them to box themselves in unnecessarily by giving gratuitous and unnecessary tax handouts to people who do not need them. It is no wonder that the City has got the jitters. While it does not get too much information from "News at Ten", and despite the Financial Times not being published, it must realise that it is madness for a Government to scream that they are short of money and have an overrun public borrowing requirement while sitting here increasing expenditure by £236 million this year and £403 million next year on a group of people who plainly do not need the money.
If a choice must be made either to protect vital services or to give away such sums of money to those who need them least there can be no question which way the decision should go. There can be no doubt in economic terms. Industry will suffer if the Government choose not to maintain vital services—it has already suffered from the 2 per cent. cut in public spending—and jobs will go in private and public industry. Nor is there any doubt about the choice to be made in social terms because people will suffer from cuts in expenditure unless the tax reductions are abandoned. Nor can there be any doubt in moral terms. The Committee is faced with a moral issue. Should it be party to the straightforward deception of the electorate? Should it permit such largesse to a small number of people who do not need it when many others need it desperately? Given the economic crisis, the Government should


withdraw the Finance Bill. Failing that, Conservative Members should vote with the Opposition for the amendment and stop this madness and immorality.

Question put, That the amendment be made:

The Committee divided: Ayes 157, Noes 247.

Division No. 14]
[6.41 pm


AYES


Adams, Allen (Paisley N)
Gourlay, Harry


Alton, David
Hamilton, W. W. (Central Fife)


Anderson, Donald
Hardy, Peter


Archer, Rt Hon Peter
Harrison, Rt Hon Walter


Ashton, Joe
Hattersley, Rt Hon Roy


Atkinson, N. (Tottenham)
Haynes, Frank


Bagier, Gordon A. T.
Heffer, Eric S.


Barnett, Guy
Hogg, N. (C'nauld &amp; Kilsyth)


Barron, Kevin


Hoyle, Douglas


Beckett, Mrs Margaret
Hughes, Mark (Durham)


Beith, A. J.
Hughes, Robert (Aberdeen N)


Bell, Stuart
Hughes, Sean (Knowsley S)


Bermingham, Gerald
Hughes, Simon (Southwark)


Bidwell, Sydney
John, Brynmor


Blair, Anthony
Jones, Barry (Alyn &amp; Deeside)


Boothroyd, Miss Betty
Kaufman, Rt Hon Gerald


Boyes, Roland
Kennedy, Charles


Bray, Dr Jeremy
Kirkwood, Archibald


Brown, Gordon (D'f'mline E)
Lambie, David


Brown, R. (N'c'tle-u-Tyne N)
Lamond, James


Buchan, Norman
Leadbitter, Ted


Caborn, Richard
Lewis, Ron (Carlisle)




Callaghan, Rt Hon J.
Lewis, Terence (Worsley)


Callaghan, Jim (Heyw'd &amp; M)
Lloyd, Tony (Stretford)


Campbell-Savours, Dale
Lofthouse, Geoffrey


Canavan, Dennis
Loyden, Edward


Cartwright, John
McCartney, Hugh


Clark, Dr David (S Shields)
McDonald, Dr Oonagh


Clarke, Thomas
McKay, Allen (Penistone)


Clay, Robert
McKelvey, William


Cohen, Harry
Mackenzie, Rt Hon Gregor


Coleman, Donald
McTaggart, Robert


Conlan, Bernard
Madden, Max


Cook, Frank (Stockton North)
Marek, Dr John


Cook, Robin F (Livingston)
Martin, Michael


Corbett, Robin
Mason, Rt Hon Roy


Cowans, Harry
Meadowcroft, Michael


Craigen, J. M.
Michie, William


Cunliffe, Lawrence
Mikardo, Ian


Dalyell, Tam
Millan, Rt Hon Bruce


Davies, Ronald (Caerphilly)
Miller, Dr M. S. (E Kilbride)


Davis, Terry (B'ham, H'ge H'l)
Morris, Rt Hon J. (Aberavon)


Deakins, Eric
Oakes, Rt Hon Gordon


Dewar, Donald
O'Brien, William


Dixon, Donald
O'Neill, Martin


Dormand, Jack
Orme, Rt Hon Stanley


Dubs, Alfred
Owen, Rt Hon Dr David


Duffy, A. E. P.
Park, George


Dunwoody, Hon Mrs G,
Patchett, Terry


Eadie, Alex
Pavitt, Laurie


Eastham, Ken
Penhaligon, David


Evans, Ioan (Cynon Valley)
Pike, Peter


Evans, John (St. Helens N)
Powell, Rt Hon J. E. (S Down)


Ewing, Harry
Powell, Raymond (Ogmore)


Fatchett, Derek
Prescott, John


Faulds, Andrew
Radice, Giles


Field, Frank (Birkenhead)
Redmond, M.


Fisher, Mark
Richardson, Ms Jo


Flannery, Martin
Rogers, Allan


Foot, Rt Hon Michael
Ross, Ernest (Dundee W)


Forrester, John
Rowlands, Ted


Foulkes, George
Sedgemore, Brian


Freud, Clement
Sheerman, Barry


Garrett, W. E.
Sheldon, Rt Hon R.


George, Bruce
Shore, Rt Hon Peter


Godman, Dr Norman
Short, Ms Clare (Ladywood)


Golding, John
Skinner, Dennis


Gould, Bryan
Smith, C.(Isl'ton S &amp; F'bury)





Smith, Cyril (Rochdale)
Wallace, James


Smith, Rt Hon J. (M'kl'ds E)
Warden, Gareth (Gower)


Soley, Clive
Wareing, Robert


Stewart, Rt Hon D. (W Isles)
Welsh, Michael


Stott, Roger
Wigley, Dafydd


Strang, Gavin
Wilson, Gordon


Straw, Jack
Winnick, David


Thomas, Dr R. (Carmarthen)
Wrigglesworth, Ian


Thompson, J. (Wansbeck)



Thorne, Stan (Preston)
Tellers for the Ayes:


Tinn, James
Mr. James Hamilton and


Varley, Rt Hon Eric G.
Mr. Austin Mitchell.


Wainwright, R.



NOES


Adley, Robert
Eggar, Tim


Alexander, Richard
Emery, Sir Peter


Amess, David
Evennett, David


Ancram, Michael
Eyre, Reginald


Arnold, Tom
Fallon, Michael


Ashby, David
Farr, John


Aspinwall, Jack
Fenner, Mrs Peggy


Atkins, Rt Hon H. (S'thorne)
Fletcher, Alexander


Atkins Robert (South Ribble)
Fookes, Miss Janet


Atkinson, David (B'm'th E)
Forsyth, Michael (Stirling)



Baker, Nicholas (N Dorset)
Fox, Marcus


Baldry, Anthony
Franks, Cecil


Banks, Robert (Harrogate)
Fraser, Peter (Angus East)


Batiste, Spencer
Freeman, Roger


Beaumont-Dark, Anthony
Gale, Roger


Bellingham, Henry
Galley, Roy


Bendall, Vivian
Gardiner, George (Reigate)


Benyon, William
Gardner, Sir Edward (Fylde)


Berry, Hon Anthony
Glyn, Dr Alan


Biffen, Rt Hon John
Goodlad, Alastair


Biggs-Davison, Sir John
Gorst, John


Blackburn, John
Gower, Sir Raymond


Blaker, Rt Hon Peter
Greenway, Harry


Body, Richard
Gregory, Conal


Bonsor, Sir Nicholas
Griffiths, Peter (Portsm'th N)


Boscawen, Hon Robert
Ground, Reginald


Bottomley, Peter
Grylls, Michael


Braine, Sir Bernard
Gummer, John Selwyn


Brandon-Bravo, Martin
Hamilton, Neil (Tatton)


Bright, Graham
Hanley, Jeremy


Brinton, Tim
Hannam, John


Brooke, Hon Peter
Hargreaves, Kenneth


Brown, M. (Brigg &amp; Cl'thpes)
Harris, David


Bruinvels, Peter
Harvey, Robert


Bryan, Sir Paul
Hawkins, C. (High Peak)


Buchanan-Smith, Rt Hon A.
Hawkins, Sir Paul (SW N'folk)


Buck, Sir Antony
Hayes, J.


Bulmer, Esmond
Hayhoe, Barney


Burt, Alistair
Hayward, Robert


Butler, Hon Adam
Heathcoat-Amory, David


Butterfill, John
Heddle, John


Carlisle, John (N Luton)
Heseltine, Rt Hon Michael


Carlisle, Kenneth (Lincoln)
Hickmet, Richard


Carttiss, Michael
Hicks, Robert


Chalker, Mrs Lynda
Hind, Kenneth


Chapman, Sydney
Hogg, Hon Douglas (Gr'th'm)


Chope, Christopher
Holland, Sir Philip (Gedling)


Clark, Hon A. (Plym'th S'n)
Holt, Richard


Clark, Dr Michael (Rochford)
Hooson, Tom


Clark, Sir W. (Croydon S)
Howarth, Alan (Stratf'd-on-A)


Clegg, Sir Walter
Howarth, Gerald (Cannock)


Conway, Derek
Howell, Ralph (N Norfolk)


Cope, John
Jackson, Robert


Cormack, Patrick
Jenkin, Rt Hon Patrick


Corrie, John
Jessel, Toby


Couchman, James
Johnson-Smith, Sir Geoffrey


Cranborne, Viscount
Jones, Gwilym (Cardiff N)


Critchley, Julian
Jones, Robert (W Herts)


Crouch, David
Kellett-Bowman, Mrs Elaine


Currie, Mrs Edwina
King, Roger (B'ham N'field)


Dickens, Geoffrey
Knight, Gregory (Derby N)


Dicks, T.
Knight, Mrs Jill (Edgbaston)


Douglas-Hamilton, Lord J.
Knowles, Michael


Dover, Denshore
Knox, David


Dykes, Hugh
Lang, Ian






Lawrence, Ivan
Sainsbury, Hon Timothy


Lawson, Rt Hon Nigel
St. John-Stevas, Rt Hon N.


Leigh, Edward (Gainsbor'gh)
Sayeed, Jonathan


Lennox-Boyd, Hon Mark
Shaw, Sir Michael (Scarb')


Lester, Jim
Shepherd, Colin (Hereford)


Lewis, Sir Kenneth (Stamf'd)
Silvester, Fred


Lightbown, David
Sims, Roger


Lilley, Peter
Skeet, T. H. H.


Lloyd, Ian (Havant)
Smith, Tim (Beaconsfield)


Lord, Michael
Soames, Hon Nicholas


McNair-Wilson, M. (N bury)
Speller, Tony


McNair-Wilson, P. (New F'st)
Spence, John


Madel, David
Spencer, D.


Major, John
Spicer, Jim (W Dorset)


Malone, Gerald
Spicer, Michael (S Worcs)


Mawhinney, Dr Brian
Stanbrook, Ivor


Mellor, David
Steen, Anthony


Merchant, Piers
Stern, Michael


Meyer, Sir Anthony
Stevens, Lewis (Nuneaton)


Miller, Hal (B'grove)
Stevens, Martin (Fulham)


Mills, Ian (Meriden)
Stewart, Allan (Eastwood)


Mills, Sir Peter (West Devon)
Stewart, Andrew (Sherwood)


Miscampbell, Norman
Stewart, Ian (N Hertf'dshire)


Montgomery, Fergus
Stradling Thomas, J.


Moore, John
Tapsell, Peter


Morris, M. (N'hampton, S)
Taylor, John (Solihull)


Morrison, Hon C. (Devizes)
Taylor, Teddy (S'end E)


Morrison, Hon P. (Chester)
Temple-Morris, Peter


Moynihan, Hon C.
Terlezki, Stefan


Murphy, Christopher
Thomas, Rt Hon Peter


Needham, Richard
Thompson, Donald (Calder V)


Nelson, Anthony
Thorne, Neil (Ilford S)


Neubert, Michael
Thornton, Malcolm


Nicholls, Patrick
Thurnham, Peter


Normanton, Tom
Townend, John (Bridlington)


Norris, Steven
Tracey, Richard


Onslow, Cranley
Trippier, David


Oppenheim, Philip
Trotter, Neville


Ottaway, Richard
Waddington, David


Parris, Matthew
Wakeham, Rt Hon John


Patten, Christopher (Bath)
Waldegrave, Hon William


Patten, John (Oxford)
Walker, Rt Hon P. (W'cester)


Pawsey, James
Wall, Sir Patrick


Peacock, Mrs Elizabeth
Waller, Gary


Pink, R. Bonner
Warren, Kenneth


Pollock, Alexander
Watts, John


Porter, Barry
Wells, Bowen (Hertford)


Powell, William (Corby)
Wells, John (Maidstone)


Prentice, Rt Hon Reg
Wheeler, John


Proctor, K. Harvey
Whitfield, John


Raffan, Keith
Wilkinson, John


Rathbone, Tim
Winterton, Mrs Ann


Rhodes James, Robert
Winterton, Nicholas


Ridley, Rt Hon Nicholas
Wolfson, Mark


Ridsdale, Sir Julian
Wood, Timothy


Roberts, Wyn (Conwy)
Woodcock, Michael


Roe, Mrs Marion
Yeo, Tim


Rost, Peter



Rowe, Andrew
Tellers for the Noes:


Rumbold, Mrs Angela
Mr. David Hunt and


Ryder, Richard
Mr. Tristan Garel-Jones.


Sackville, Hon Thomas

Amendment accordingly negatived.

Amendment proposed: No. 3, in page 1, line 25, leave out '£7,100' and insert '£6,250'.—[Mr. Robin Cook.]

Question put, That the amendment be made:—

The Committee divided: Ayes 159, Noes 241.

Division No. 15]
[6.52 pm


AYES


Adams, Allen (Paisley N)
Barnett, Guy


Alton, David
Barron, Kevin


Anderson, Donald
Beckett, Mrs Margaret


Archer, Rt Hon Peter
Beith, A. J.


Ashton, Joe
Bell, Stuart


Atkinson, N. (Tottenham)
Bermingham, Gerald


Bagier, Gordon A. T.
Bidwell, Sydney





Blair, Anthony
Lamond, James


Boothroyd, Miss Betty
Leadbitter, Ted


Boyes, Roland
Lewis, Ron (Carlisle)


Bray, Dr Jeremy
Lewis, Terence (Worsley)


Brown, Gordon (D'f'mline E)
Lloyd, Tony (Stretford)


Brown, R. (N'c'tle-u-Tyne N)
Lofthouse, Geoffrey


Buchan, Norman
Loyden, Edward


Caborn, Richard
McCartney, Hugh


Callaghan, Rt Hon J.
McDonald, Dr Oonagh


Callaghan, Jim (Heyw'd &amp; M)
McKelvey, William


Campbell-Savours, Dale
Mackenzie, Rt Hon Gregor


Canavan, Dennis
McTaggart, Robert


Cartwright, John
Madden, Max


Clark, Dr David (S Shields)
Marek, Dr John


Clarke, Thomas
Martin, Michael


Clay, Robert
Mason, Rt Hon Roy


Cohen, Harry
Meacher, Michael


Coleman, Donald
Meadowcroft, Michael


Conlan, Bernard
Michie, William


Cook, Frank (Stockton North)
Mikardo, Ian


Cook, Robin F. (Livingston)
Millan, Rt Hon Bruce


Corbett, Robin
Miller, Dr M. S. (E Kilbride)


Cowans, Harry
Morris, Rt Hon J. (Aberavon)


Craigen, J. M.
Oakes, Rt Hon Gordon


Cunliffe, Lawrence
O'Brien, William


Dalyell, Tam
O'Neill, Martin


Davies, Ronald (Caerphilly)
Orme, Rt Hon Stanley


Davis, Terry (B'ham, H'ge H'l)
Owen, Rt Hon Dr David


Deakins, Eric
Park, George


Dewar, Donald
Patchett, Terry


Dixon, Donald
Pavitt, Laurie


Dormand, Jack
Penhaligon, David


Dubs, Alfred
Pike, Peter


Duffy, A. E. P.
Powell, Rt Hon J. E (S Down)


Dunwoody, Hon Mrs G.
Powell, Raymond (Ogmore)


Eadie, Alex
Prescott, John


Eastham, Ken
Radice, Giles


Evans, Ioan (Cynon Valley)
Redmond, M.


Evans, John (St. Helens N)
Richardson, Ms Jo


Ewing, Harry
Rogers, Allan


Fatchett, Derek
Ross, Ernest (Dundee W)


Faulds, Andrew
Rowlands, Ted


Field, Frank (Birkenhead)
Sedgemore, Brian


Fisher, Mark
Sheerman, Barry


Flannery, Martin
Sheldon, Rt Hon R.


Foot, Rt Hon Michael
Shore, Rt Hon Peter


Forrester, John
Short, Ms Clare (Ladywood)


Foulkes, George
Skinner, Dennis


Freud, Clement
Smith, C.(Isl'ton S &amp; F'bury)


Garrett, W. E.
Smith, Cyril (Rochdale)


George, Bruce
Smith, Rt Hon J. (M'kl'ds E)


Godman, Dr Norman
Soley, Clive


Golding, John
Stewart, Rt Hon D. (W Isles)


Gould, Bryan
Stott, Roger


Gourley, Harry
Strang, Gavin


Hamilton, James (M'well N)
Straw, Jack


Hamilton, W. W. (Central Fife)
Thomas, Dr R. (Carmarthen)


Hardy, Peter
Thompson, J. (Wansbeck)


Harrison, Rt Hon Walter
Thorne, Stan (Preston)


Hattersley, Rt Hon Roy
Tinn, James


Haynes, Frank
Varley, Rt Hon Eric G.


Heffer, Eric S.
Wainwright, R.


Hogg, N. (C'nauld &amp; Kilsyth)
Wallace, James


Holland, Stuart (Vauxhall)
Wardell, Gareth (Gower)


Hoyle, Douglas
Wareing, Robert


Hughes, Mark (Durham)
Welsh, Michael


Hughes, Robert (Aberdeen N)
Wigley, Dafydd



Hughes, Sean (Knowsley S)
Wilson, Gordon


Hughes, Simon (Southwark)
Winnick, David


John, Brynmor
Wrigglesworth, Ian


Jones, Barry (Alyn &amp; Deeside)



Kaufman, Rt Hon Gerald
Tellers for the Ayes:


Kennedy, Charles
Mr. Austin Mitchell and


Kirkwood, Archibald
Mr. Allen McKay.


Lambie, David



NOES


Adley, Robert
Ancram, Michael


Alexander, Richard
Arnold, Tom



Amess, David
Ashby, David






Aspinwall, Jack
Gower, Sir Raymond


Atkins, Rt Hon H. (S'thorne)
Greenway, Harry


Atkins Robert (South Ribble)
Gregory, Conal


Atkinson, David (B'm'th E)
Griffiths, Peter (Portsm'th N)


Baker, Nicholas (N Dorset)


Ground, Reginald


Baldry, Anthony
Grylls, Michael


Banks, Robert (Harrogate)
Gummer, John Selwyn


Batiste, Spencer
Hamilton, Neil (Tatton)


Beaumont-Dark, Anthony
Hanley, Jeremy


Bellingham, Henry
Hannam, John


Bendall, Vivian
Hargreaves, Kenneth


Benyon, William
Harris, David


Berry, Hon Anthony
Harvey, Robert


Biffen, Rt Hon John
Hawkins, C. (High Peak)


Biggs-Davison, Sir John
Hawkins, Sir Paul (SW N'folk)


Blackburn, John
Hayes, J.


Blaker, Rt Hon Peter
Hayhoe, Barney


Body, Richard
Hayward, Robert


Bonsor, Sir Nicholas
Heathcoat-Amory, David


Boscawen, Hon Robert
Heddle, John


Bottomley, Peter
Heseltine, Rt Hon Michael


Braine, Sir Bernard
Hickmet, Richard


Brandon-Bravo, Martin
Hicks, Robert


Bright, Graham
Hind, Kenneth


Brinton, Tim
Holland, Sir Philip (Gedling)


Brooke, Hon Peter
Holt, Richard


Brown, M. (Brigg &amp; Cl'thpes)
Hooson, Tom


Bruinvels, Peter
Howarth, Alan (Stratf'd-on-A)


Bryan, Sir Paul
Howarth, Gerald (Cannock)




Buchanan-Smith, Rt Hon A.
Howell, Ralph (N Norfolk)


Buck, Sir Antony
Hunt, David (Wirral)


Bulmer, Esmond
Jackson, Robert


Burt, Alistair
Jenkin, Rt Hon Patrick


Butler, Hon Adam
Jessel, Toby


Butterfill, John
Jones, Gwilym (Cardiff N)


Carlisle, John (N Luton)
Jones, Robert (W Herts)


Carlisle, Kenneth (Lincoln)
Kellett-Bowman, Mrs Elaine


Carttiss, Michael
King, Roger (B'ham N'field)


Chapman, Sydney
Knight, Gregory (Derby N)


Chope, Christopher
Knight, Mrs Jill (Edgbaston)


Clark, Hon A. (Plym'th S'n)
Knowles, Michael


Clark, Dr Michael (Rochford)
Knox, David


Clark, Sir W. (Croydon S)
Lang, Ian


Clegg, Sir Walter
Lawrence, Ivan


Colvin, Michael
Leigh, Edward (Gainsbor'gh)


Conway, Derek
Lester, Jim


Cope, John
Lewis, Sir Kenneth (Stamf'd)


Cormack, Patrick
Lightbown, David


Corrie, John
Lilley, Peter


Couchman, James
Lloyd, Ian (Havant)


Cranborne, Viscount
Lord, Michael


Critchley, Julian
McNair-Wilson, P. (New F'st)




Crouch, David
Madel, David


Currie, Mrs Edwina
Major, John


Dickens, Geoffrey
Mawhinney, Dr Brian


Dicks, T.
Mellor, David


Douglas-Hamilton, Lord J.
Merchant, Piers


Dover, Denshore
Meyer, Sir Anthony


Dunn, Robert
Miller, Hal (B'grove)


Dykes, Hugh
Mills, Ian (Meriden)


Eggar, Tim
Mills, Sir Peter (West Devon)


Emery, Sir Peter
Miscampbell, Norman


Evennett, David
Montgomery, Fergus


Eyre, Reginald
Moore, John


Fallon, Michael
Morris, M. (N'hampton, S)


Farr, John
Morrison, Hon C. (Devizes)


Fenner, Mrs Peggy
Morrison, Hon P. (Chester)


Fletcher, Alexander
Moynihan, Hon C.


Fookes, Miss Janet
Murphy, Christopher


Fox, Marcus
Needham, Richard


Franks, Cecil
Nelson, Anthony


Freeman, Roger
Nicholls, Patrick


Gale, Roger
Normanton, Tom


Galley, Roy
Norris, Steven


Gardiner, George (Reigate)
Onslow, Cranley


Gardner, Sir Edward (Fylde)
Oppenheim, Philip


Garel-Jones, Tristan
Parris, Matthew


Glyn, Dr Alan
Patten, Christopher (Bath)


Goodlad, Alastair
Patten, John (Oxford)


Gorst, John
Pawsey, James





Peacock, Mrs Elizabeth
Stradling Thomas, J.


Pink, R. Bonner
Tapsell, Peter


Porter, Barry
Taylor, John (Solihull)


Powell, William (Corby)
Taylor, Teddy (S'end E)


Prentice, Rt Hon Reg
Tebbit, Rt Hon Norman


Proctor, K. Harvey
Temple-Morris, Peter


Raffan, Keith
Terlezki, Stefan


Rathbone, Tim
Thomas, Rt Hon Peter


Rhodes James, Robert
Thompson, Donald (Calder V)


Ridley, Rt Hon Nicholas
Thorne, Neil (Ilford S)


Ridsdale, Sir Julian
Thornton, Malcolm


Roberts, Wyn (Conwy)
Thurnham, Peter


Roe, Mrs Marion
Townend, John (Bridlington)


Rost, Peter
Tracey, Richard


Rowe, Andrew
Trippier, David


Rumbold, Mrs Angela
Trotter, Neville


Ryder, Richard
Waddington, David


Sackville, Hon Thomas
Wakeham, Rt Hon John


Sainsbury, Hon Timothy
Waldegrave, Hon William


St. John-Stevas, Rt Hon N.
Walker, Bill (T'side N)


Sayeed, Jonathan
Wall, Sir Patrick


Shaw, Sir Michael (Scarb')
Waller, Gary


Shepherd, Colin (Hereford)
Warren, Kenneth


Silvester, Fred
Watts, John


Sims, Roger
Wells, Bowen (Hertford)


Skeet, T. H. H.
Wells, John (Maidstone)


Smith, Tim (Beaconsfield)
Wheeler, John


Soames, Hon Nicholas
Whitfield, John


Speller, Tony
Wilkinson, John


Spence, John
Winterton, Mrs Ann


Spencer, D.
Winterton, Nicholas


Spicer, Michael (S Worcs)
Wolfson, Mark


Stanbrook, Ivor
Wood, Timothy


Steen, Anthony
Woodcock, Michael


Stern, Michael
Yeo, Tim


Stevens, Lewis (Nuneaton)



Stevens, Martin (Fulham)
Tellers for the Noes:


Stewart, Allan (Eastwood)
Mr. Douglas Hogg and


Stewart, Andrew (Sherwood)
Mr. Michael Neubert.


Stewart, Ian (N Hertf'dshire)

Question accordingly negatived.

Clause 1 ordered to stand part of the Bill.

Clause 2

CORPORATION TAX: SMALL COMPANIES

Mr. Robert Sheldon: I beg to move amendment No. 5, in page 2, line 18, leave out `£500,000' and insert `£250,000'.
Clause 2 deals with the tapering of the reduced rate of corporation tax. I appreciate, as the Committee always appreciates, that when there are two rates of corporation tax a company qualifying for the higher rate incurs a high marginal rate of tax. Moreover, if the difference between the two rates of corporation tax is increased the marginal rate of tax is also increased. The result is something analogous to the poverty trap. It is, as it were, a prosperity trap. As a company moves from the 38 per cent. rate towards the 52 per cent. rate of corporation tax, it incurs a higher marginal rate of tax.
The argument for extending the tapering provision is to reduce that high marginal rate of tax. I understand the reasons for that. If an expanding company starts to incur rates of tax higher than 38 per cent. there will be a disincentive to expand further. I am not sure that that is so. An expanding company can get through that barrier more quickly if the barrier is small than if it is extended. The rights or wrongs of this type of taxation are consequent on the arithmetic of the proposition. If one accepts the argument for a reduction in the marginal rate of tax, one might also argue that £500,000 is not enough


for the taper. A figure of £1 million or £2 million would produce an even lower marginal rate. The basic justification for a tapering relief would then become absurd. I believe that the £500,000 is already absurd. There is something wrong about calling a company that makes £500,000 profits a small company, thereby justifying a lower rate of tax.
We must consider, in more tranquil circumstances, what to do about a system of corporation tax that behaves in a way that an untutored observer might well regard as irrational. I believe that the classical system that we had in the 1960s was far more sensible. Companies knew, could work out and, most importantly, could anticipate, the tax that they would have to pay on their profits.
The tax system is not the cure for all our economic ills and I understand the reluctance to examine these matters again. We need only to look at the nonsenses in other countries to realise that the relationship between the tax system and economic success is far from as obvious as so many people in this country believe it to be.
Small company relief which extends to profits of £500,000 a year is not just a distortion but a violation of the term "small companies". It presupposes that companies would organise their affairs to avoid such a high marginal rate of tax. I do not believe that is so. I remain unconvinced that they will be numerous or important enough to justify this type of treatment. Although this is by no means the most important part of the Finance Bill, I believe that the Opposition amendment is a far better way to deal with the issue than that proposed by the Treasury and the Financial Secretary.

Mr. Ridley: The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred to our general system of corporation tax, but the chances of going back to the classical tax are remote indeed. Because of the views of industry, if for no other reason, we need some stability and certainty in our tax affairs, especially corporation tax. There have been too many changes in the past. I believe that the overwhelming feeling is that we should stay with the present system, warts and all. The Government sought to improve the position for small companies because we set great store on encouraging them to make, to keep and to invest profits so that they may grow as part of our campaign to secure more jobs.
Perhaps I should give the history of this relief. It now stands at 38 per cent., but when we came to power the small companies' profits rate was 42 per cent. That reduction has been a major help to companies in retaining more of their profits.
The question at issue in the amendment is not the rate of tax but the limits over which the lower rate of tax will be phased out to the higher rate of 52 per cent., as the right hon. Gentleman rightly said. The crucial point here is that the range of profits over which company taxation has to go from 38 per cent. to 52 per cent. must, by a mathematical certainty, result in a marginal rate that is higher than 52 per cent. The Government have sought to reduce the marginal rate as much as possible. It was 67 per cent. when it extended between £60,000 and £100,000 of company profits in 1979. In 1982, we brought the marginal rate down to 60 per cent., when the figures were £90,000 to £225,000. This year, my right hon. and learned Friend brought down the marginal rate to 55·5 per cent.

in the proposal that the transitional range of profits should go from £100,000 to £500,000. That is only three and a half points above the 52 per cent. rate.
The right hon. Gentleman's amendment would put the marginal rate back to 61·7 per cent. That would not be a good idea. The right hon. Gentleman is not totally right when he says that it is not a major objective of industry and business to have this marginal rate reduced. Both the Association of British Chambers of Commerce and the Institute of Directors pressed strongly in their Budget submissions for the marginal rate to be reduced, and many of my right hon. and hon. Friends take the same attitude. Indeed, some of them suggested that we should have a slice system instead of the present slab system. However, the Government feel that it is easier to help small companies if we stick with the present system, instead of a slice system.
The relief tapers off the higher profits. For instance, the maximum relief that can be achieved under the clause is for a company with profits of £100,000, when the relief is worth £14,000 less corporation tax. If the profits are £300,000, for instance, the relief is worth only £7,000, as it tapers out. The effect of the relief is still heavily tapered on small companies, and fades away as profits rise.
I do not know whether a company making profits of £500,000 is a small company, but that is not the point. We must reduce the disincentive to expand that is identified in this marginal rate. In the Government's view it is just as important to help people to create new companies as to help them to expand in the difficult period before they are big enough to go to the Stock Exchange for a quotation. This limit of £500,000, the taper for the phasing out of the lower rate of corporation tax, is a considerable contribution in that respect.
I hope that the right hon. Gentleman will be persuaded by my argument. The cost is not large but it is a good use of the money in an endeavour to do all that we can to help small and growing companies to provide more jobs for the future.

Amendment negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Campbell-Savours: I rise to speak in the "clause stand part" debate because it is the only opportunity that we have in our debates on the Finance Bill to address ourselves more generally to the problems of small businesses and to the extent that we believe corporation tax reductions will benefit those small businesses. I am not confident that reductions in corporation tax for small businesses are helpful. Tax liability is incurred only by those who make profits. This Committee should address itself to the real problems of small businesses—in other words, the absence of markets, which results from reduced demand in the British economy.
7.15 pm
Wherever I go, certainly in my constituency, I discuss these matters and try to establish what most small business men in Workington believe is in their best interests. They refer repeatedly to the problem of reduced orders. We know that that problem depends very much on the central thrust of the Government's economic strategy. It would be churlish not to pay regard to the innumerable measures that have been introduced by this Government to help small businesses, and for that they are all very grateful. The


principal measures are, of course, the small business startup scheme, which has been modified, and the enterprise allowance and loan guarantee schemes, all of which are important initiatives taken by this Government. However, small business men say that those initiatives are of little use unless demand is created in the British economy, and they await a Government strategy to deal with that problem.
First, the ability of local economies to generate small business activity varies in different parts of the country. Small business men find it much easier to set up in London and the major conurbations. In other parts of the country —the northern region, Scotland, parts of Wales, and the south-west—it is more difficult to start up. The reasons are clear. In the major conurbations there are greater markets and opportunities for people to go into business. In the outer fringes of the British economy there is less opportunity to do so. Local markets in west Cumberland do not provide the same opportunities as do local markets in the central conurbations and in London. The small business strategy of any Government — reductions in corporation tax must be part of that strategy — should take into account the lack of opportunity in various parts of the United Kingdom.
Secondly, we are not on the doorstep of the major financial institutions. Where major financial institutions are located there is clearly more opportunity for people in business to raise money. It was made clear during the interviews that took place at a recent seminar of the Department of Industry in my constituency, that small business people objected to the lack of support from the local banking system.
Thirdly, people in the outer regions are required to pay higher costs for the infrastructure services, which are important to the development of smaller industries. One example is the cost of transport. To ship one's products from the outer regions to the main markets, whether in Europe or in the major conurbations in the United Kingdom, costs substantially more than for small businesses located in a central market conurbation. Government incentives to small businesses should take into account the major problem of increased transport costs.
There is an increasing problem which derives from the Government's policy on regional strategy. Many parts of the United Kingdom, including my own, have lost the high level of regional support that was available under former Labour Governments. It has been reduced to service the substantial reduction—over half—in the Government's regional budget.
Finally, we lack the major centres of learning which are crucial to the development of small businesses, particularly in high technology. The Government repeatedly, as a background statement to the thrust of their economic strategy, which includes the reduction in corporation tax, tell us that future job opportunities in the economy will be very much centred on high technology and its development. It is in that area, irrespective of the reductions in taxation, that those of us in the regions find that we are unable even to get on to the first rung of the ladder. We cannot attract that activity which, in the Government's view, is central to our development.
I have come up with a package based on a high technology enterprise park. Instead of allocating money in

the form of reduced corporation tax liability, the Government should channel it far more selectively into hi-tech development by designating several enterprise zones in parts of the United Kingdom which, due to their present arrangement, are unable to attract such development. Those enterprise zones, which would be known as hi-tech enterprise parks, would also enjoy special development area status, separate from other similarly designated areas within the region. They would automatically be allowed the higher level of enterprise allowance which the Government made available nationally in the Budget this year. In addition, they would enjoy any other forms of sectoral support that the Government might be willing to introduce to favour that particular form of industrial development.
That would be of particular interest to an area such as mine. West Cumbria has failed to attract those industries which we shall need in the future. All we have is the Lake District, people's natural skills and their eagerness to go out and support whatever industrial enterprise we are able to attract. The Government should consider setting up such an enterprise park within the national park, where the land lies low, where it can be seen by few, but where it will serve to attract this very important type of industry which is central to the regeneration of declining industrial areas. To invest in that form of industrial development would be a far better way of spending money on small business than supporting reductions in corporation tax, as is proposed in the Bill.

Mr. Ridley: The hon. Member for Workington (Mr. Campbell-Savours) will forgive me if I reply to him briefly because we are straying somewhat from the clause. I question whether he is right to say that industry would prefer to see such money as is involved in the clause going to the sort of enterprise that he suggested rather than going in tax relief.
The hon. Gentleman complained about the absence of demand, but that is not sustainable. Last year in the British economy total demand increased by 3 per cent. What was depressing was that 2 per cent. of it was met by imports and 1 per cent. by increased production. It is only through greater competitiveness that we can get that 3 per cent. We can get even more through increased exports. High technology enterprise parks such as the hon. Gentleman suggested do exist in Belgium, but I doubt whether they would result in increased competitiveness, which is the real point.
The hon. Gentleman mentioned the difficulties of the area that he represents, which I know well. He mentioned its remoteness from other markets and centres of industrial activity and its high transport costs. They are all factors in competitiveness. Those costs must be taken into account when setting up in business to price a product and sell it. We should put a high proportion of our resources into increased competitiveness because that is the way in which firms will increase their production and sell more. If a reduction in corporation tax enables firms to retain more of their profits, it will be a substantial contribution to increased competitiveness.
I question whether there is a better way to use all our resources than to allow companies to modernise themselves so that they can capture markets and overcome the natural difficulties of the environment in which they exist. I am grateful to the hon. Gentleman for what he said about the Government's measures to assist small


businesses. I am glad that he recognises what we have tried to do. I hope that he will recognise that all those measures, including the reduction in corporation tax in the Bill, are specifically and properly designed to help companies become more viable, more competitive, better able to capture markets, and thus better able to provide more jobs for those in regions such as his own

Mr. Campbell-Savours: Does the right hon. Gentleman accept that many of our overseas competitors, particularly Japan, have sectorally invested in high technology in the way that I have suggested and will reap the rewards? Is there not a duty on Government, if finance is available, to help small businesses to ensure that we reap the rewards in the way that others have done?

Mr. Ridley: Yes, I do not deny that. The hon. Gentleman will know that much money has been spent by the Department of Industry on the small firms investment scheme and on high technology in all its different forms. However, it would be a disaster greatly to increase the taxation on industry in order to spend more on this sort of project. We must find the right balance between the recycling of industrial profits by the Government for the benefit of industry and the point at which it is better to allow industry to invest its profits as it sees fit. I would not like to go further than we have gone in the Bill.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3

RELIEF FOR INTEREST

Question proposed, That the clause stand part of the Bill.

Mr. Straw: Clause 3 proposes an increase in mortgage tax relief from £25,000 to £30,000. It gives the committee a chance to discuss, in perhaps a rather less frenetic atmosphere than just before the election, the general question of how best to encourage owner-occupation through the tax system. All hon. Members are in favour of the extension of owner-occupation and all Governments since the war have tried to encourage it.
In many ways Labour Governments have made more successful efforts to encourage home ownership than other Governments, through the introduction of the option mortgage scheme, and the grant and loan schemes of my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore). However, the fact that we are all in favour of encouraging owner-occupation and subsidising it, does not mean that it automatically follows that we are in favour of each and every proposal for improving or extending tax relief.
It is interesting to note that tax relief on mortgages was not part of some explicit policy developed by Government and then approved by the House. It is a hangover from a quite separate tax regime—that of schedule A. The idea was that all income arising from capital, even imputed income, should be subject to a charge to tax and that correspondingly, any capital expenditure—pre-eminently interest payments, regardless of what the capital was borrowed for—should be the subject of tax relief. There was a symmetry about schedule A, even though we all remember that it was an unpopular tax. Indeed, it was one of the measures that, I think, the late Sir Gerald Nabarro

took up with great gusto, and finally had abolished. One part of schedule A was abolished, but the other part was not. That is why we are left with a subsidy that has an anomalous root.
As recent Treasury figures show, the subsidy has grown greatly. Even before the increase in the mortgage tax rate, I believe that it was running at about £2,150 million per year.
The second point that the Committee should examine very coolly is whether the subsidy has worked in the way that those who want it greatly extended believe that it has, or whether it has worked differently. The subsidy should improve the opportunities available to people to purchase houses. That is the idea of a housing subsidy. It should also improve the total demand for housing and so encourage the housebuilding industry. I readily acknowledge that the evidence is not complete, but there is a good deal of evidence to suggest that such subsidies have principally affected not the quantity of housing, but its price. In other words, the subsidy has, on the whole, changed not what people can buy, but the price that they will have to pay for it.
Therefore, there is something paradoxical about the subsidy. Of course it has been of obvious benefit to individuals. Many hon. Members, including me, benefit from it. However, it is questionable whether it has generally benefited house owners and buyers. I say that because it appears that a large part of the subsidy has become capitalised into house prices. Had the subsidy not existed, house prices might have been that much lower.
That characteristic of the subsidy has been well recognised by Treasury officials and Ministers. However, I exclude the Economic Secretary from that, because he has only just moved to that great Department. The record shows that in the Finance Bills for 1979, 1980, 1981 and 1982 the Government were not indexing things. In 1981 they had to apologise profusely for their lack of indexation. They stoutly resisted proposals not only to index the £25,000 limit that was set in 1974, but also to increase it by £1,000 or £2,000. In the debates in 1980, 1981 and 1982, Treasury Ministers came under pressure from their Back Benchers to increase the subsidy, and they had to perform a difficult balancing act. Nevertheless they stuck pretty stoutly and resolutely to the line. Although they did not advance their reasoning in public, we know that the reasons that had led them to that decision and to the arguments that they put forward inside the Government were similar to those that we are putting forward this afternoon. Those arguments cast a very sceptical eye over the value of spending additional resources by way of increasing the limit, instead of using the same resources in other areas of housing.
I hope that the Economic Secretary will admit to that scepticism, as I know from private conversations that it is felt throughout the House. It is also reflected in some of the comments made in the report of the Treasury and Civil Service Committee on "The Structure of Personal Income Taxation and Income Support." I acknowledge that the paragraph that I am about to quote was, according to the minutes, disagreed to by the Committee as a whole. Nevertheless, I am assured by the Chairman of the Sub-Committee, my hon. Friend the Member for Oldham, West (Mr. Meacher), that the Sub-Committee agreed to the passage that I am about to quote. Therefore, it reflects


the view of only some — and not a majority — of Conservative Members, as well as those of Opposition Members. In paragraph 10.17 it said:
Our conclusion is that the reliefs on mortgage interest and pensions contributions should be restricted to the standard rate of tax and that the cost of the reliefs should be counted as and subject to the normal controls over public expenditure. We do not go so far as to recommend the abolition of the reliefs in whole or in part"—
Neither do we—
However, the rationale for them is by no means entirely clear and they introduce an undesirable regressive element into the tax system. We think the Government should put in hand a detailed examination of the justification for the reliefs and of the effects of phasing them out and, in due course, publish a White Paper. Meanwhile, we have included in our consideration of the options for change … the possibility of reducing mortgage interest relief by a half and spending the money saved in other ways.
Although the report's birth was a little difficult because of the intervening election, I hope that the Government will consider that recommendation and put in hand that serious examination. Now is the time to do it, just after an election when there is less need than formerly to conduct the argument simply at the level of rhetoric.
We had reservations about the proposal to increase the limit from £25,000 to £30,000 because we thought that if there was £60 million to spend—the cost of the proposal — it could be spent on housing in better ways. One possible paradox resulting from increasing the relief in this way is that if the subsidy has, as many of us think, helped to push up house prices, it may well have undermined the opportunities available for those whom it is principally designed to help. I refer to the first-time house buyer. In the past year he has seen an increase in house prices of 11 per cent.
We also felt that there was not sufficient justification for the increase, for the reasons that the former Chief Secretary echoed in a speech that he made on 29 April 1982. He said:
The average advance to first-time buyers is now £14,500 and to other borrowers about £15,500, so the limit of £25,000 on the size of loan qualifying for relief is still high enough not to affect the vast majority of home-buyers.
It is true that that was said in 1982. The figures that the then Chief Secretary quoted have advanced a bit. The average mortgage for the first-time buyer is now just over £16,000 and the figure for other borrowers is just over £19,000. Nevertheless, his point remains valid. The limit of £25,000 was sufficient to encompass the great majority of buyers, particularly those in the market for the first time.
When my right hon. Friend the Member for Bethnal Green and Stepney was Secretary of State for the Environment, he introduced a grant and loan scheme that provided a cash bonus of up to £110 for first-time buyers and a loan of £600 if they bought a house within certain limits. The present Government were committed to improving that scheme according to their 1979 manifesto. From what she said at Question Time today, the Prime Minister apparently still regards that manifesto as a hallowed and revered document, so I assume that the commitment stands. It remains to be implemented.
In January 1980 the hon. Member for Brentwood and Ongar (Mr. McCrindle) asked the then Secretary of State for the Environment when he proposed to improve the scheme. He was told that the commitment was contained

in the manifesto but that the Government had made it absolutely clear that it had to follow improvements in the overall economic climate.
We believe that part of the £60 million could be better spent on encouraging more first-time buyers if it were used for a grant and loan scheme rather than a mortgage subsidy. I shall be interested to hear whether that is possible.
The Labour party is strongly committed to encouraging owner-occupation. We are committed to encouraging that partly through the tax system, but that does not prevent a serious discussion across the Chamber about the best way of achieving a common end.

Mr. John Cartwright: I agree with much of the analysis by the hon. Member for Blackburn (Mr. Straw) of the origins of mortgage tax relief. If one tried to devise a system for giving help to those who need it when buying their homes, one would not come up with the existing system of mortgage tax relief. It is a historical accident and the inequities are clear. The system is geared to giving the most help to people with the largest mortgages who need help the least.
The system certainly helped to push up house prices. Far from assisting first-time buyers, there is evidence that the existing mortgage tax relief arrangements do most to help people who are trading up, buying second and third houses and moving to more and more expensive houses. That is not the aim of those who want to use mortgage assistance to bring owner-occupation within the grasp of more people.
The need for reform is clear. We should aim to concentrate most of the help on those who need it most —those at the bottom of the income scale. That is why during the election campaign the alliance argued the case for an income-related mortgage assistance scheme. Such a scheme would be based not upon the size of the mortgage, but upon the size of a person's income. The system would involve standard rate of relief for a large band of taxpayers with average or lower than average incomes, and lower rates of relief for those on higher incomes and a less strong case for public support when buying their houses.
The difficulty about such an approach is that it involves individual tax assessment. Such a scheme would be impracticable unless and until PAYE is computerised.

Mr. Campbell-Savours: Why is it that during the election campaign we heard reports from up and down the land of Liberal and SDP candidates supporting the raising of the threshold to £30,000 when the hon. Member and his hon. Friends have been in the Lobby against that proposal in the last 14 days?

Mr. Cartwright: I cannot speak for every Liberal and SDP candidate throughout the land. I can speak only for myself. I shall explain my view about the £30,000 and I shall also explain the party view. There may not be a unified alliance view. Different views are not unhealthy or unreasonable.

Mr. Campbell-Savours: Can the hon. Gentleman explain why last night alliance Members voted three ways—some voted in favour of the International Monetary Arrangements Bill, some against it and some abstained. Is that a consistent political position?

Mr. Cartwright: We are not discussing the International Monetary Arrangements Bill today and if I did I should be ruled out of order. It is not unusual for Members of the Labour party to split at least three ways on an issue. I have 30 years' experience of the Labour party and I can think of a number of occasions when deep divisions caused the Labour party to go in different directions. If the alliance does that occasionally, it is not unusual.
The alliance is in favour of gearing mortgage tax relief to incomes, but that may not be possible under existing tax arrangements or until PAYE is computerised. The problem is what to do about existing practice. I recognise the hon. Member for Blackburn's case against a blanket increase from £25,000 to £30,000. However, the £25,000 figure was fixed a long time ago and house prices have risen dramatically. In some parts of the country £25,000 is reasonable and buys a substantial residence, but that is not so in all parts of the country.
If one tried to buy a two-up, two-down house in beautiful down-town Plumstead — not the most fashionable part of London—one would have to struggle hard to find anything under £25,000. For a normal house one would pay a great deal more than that. I am sure that the hon. Member for Blackburn wants to help people at the bottom of the income scale, but they are penalised by the £25,000 limit.
One of the solutions is to explore the possibilities of a regional approach to the mortgage tax ceiling. The house purchase assistance scheme provides a precedent. The Government use the scheme to provide cash help for those who have saved towards their deposit. The scheme is little used and costs only £1 million of taxpayers' money. The scheme could be improved and extended to encourage people to buy their own homes.
One of the features of the house purchase assistance scheme is that the ceiling on house prices is assessed regionally. The limits are based on a Department of the Environment formula and are geared to house prices in 11 regions. Different parts of the country have different limits.
The highest qualification figure is in greater London where the limit, magically, is £30,000. In the south-east the limit is £27,000 and in the west Midlands it is £20,500. In the northern region it is £18,500 and in Yorkshire and Humberside one qualifies only if one is buying a house up to the value of £18,000. There is a precedent for a regional approach to the problem. While we retain the existing system—and I want it changed as quickly as possible to a fairer system— a regional approach to house prices would iron out at least some of the inequities.

Mr. David Penhaligon: The debate provides an opportunity to discuss the problems faced by those wishing to buy a home. We all tend to judge what is a reasonable price for a house by our local experience. My judgment is a reflection of the area that I represent, where I was born and brought up. I view the Government's proposal on the basis of whether is will help my constituents, especially those in real difficulties.
My part of the world is slightly different from the remainder of Britain because the percentage of council houses in my county is less than 15 per cent. of total properties. There are 100 families living in temporary accommodation as homeless families, hoping that one of the 15 per cent. of properties will become vacant so that

they can make what most of us would call a normal home. Those 100 families are living in caravans or rooms in large converted properties while waiting for council homes. The simple reality is that if a young couple marry and wish to live in their own property, they have no choice but somehow to buy a property. It is hopeless to wait for a council home and there are few properties to let because an alternative use for let properties is favoured by landlords. There is enormous pressure on couples in my area to buy a property and take on a mortgage. I have told many young couples who come to my surgeries that the only alternative is to become pregnant and hope to be rehoused under the homeless persons legislation.
I judge the clause on whether it will help couples in my area — people on low incomes who have recently married and are looking for their first home. I am talking about those earning between £5,000 and £8,000 a year, hoping to borrow two and a half times their income, probably between £12,500 and £20,000. Those who can borrow £20,000 are fortunate. The people with problems are not those worried about paying the interest on a £30,000 mortgage, but those wondering how they can meet the repayments on a £12,500 or £15,000 mortgage. The properties that they can buy are usually fairly inadequate and in need of repair.
The sad conclusion is that such people will not receive any help from the clause. It will not ease their position by one farthing a year, let alone by any useful sum. The money provided by the clause could be used to help those facing real problems.
The most unjustifiable aspect of mortgage tax relief is the way it provides greater help as incomes increase. If someone takes on a mortgage and then doubles his income, clearly the original repayment will be no great problem yet he will find that the amount of relief increases. I calculate that someone in the highest tax band—with a taxable income of £36,000 a year, which means that he must be earning considerably more than that—with a £30,000 mortgage will receive tax relief from the Government of £2,000 a year. Yet a struggling young couple with a £15,000 mortgage, paying the standard rate of tax on a taxable income of £6,000 or less, receive only £500 a year in tax relief. That cannot be a sensible way to use the large sums of money that we rightly give towards encouraging owner-occupation. The money should be spent to encourage first-time buyers.
My experience as a Member of Parliament of individuals having difficulty with their first house purchase is that they are not those who, on the whole, pay tax at 60 per cent. and have £30,000 mortgages; they are people on low incomes who, because of the pressure of local circumstances, are forced to take on financial responsibility at which many of us would pale—but the alternative is no home at all.
Have the Government seriously considered the possibility of limiting tax relief to the standard rate and then increasing the size of the mortgage relief to £35,000? They could then use some of the money that would undoubtedly be saved to increase help for young couples buying their first home. I cannot emphasise too strongly that we should be directing the money at first-time buyers. If there is a certain problem in the inner metropolitan area of London, we must face that, but the additional money being made available will not help those who most deserve help. That cannot be a sensible use of Government money.

Mr. Ridley: I apologise to the hon. Member for Blackburn (Mr. Straw) for being absent from the Chamber for a few minutes. However, I have been given a full report of what he said and will deal with his points in my speech.
There is a simple technicality that should be considered. If the Opposition vote against the clause and, by some miracle, defeat it, that would restrict relief to £25,000 for the whole of the financial year 1983–84. As the relief has been included in the tax codings of those with mortgages between £25,000 and £30,000, a clawback would be necessary for the part of the year that has already passed. That could probably not be done until next year's codings, although it might be possible in some cases where assessments are made. It is unlikely that it would be easy to reverse the decision taken by the Chancellor in the Budget without considerable difficulty, delay and distress for those affected, and we shall not do it. It would be a breach of the pledge that we gave before the election that we would reintroduce the £30,000 limit if we were returned. I am sure that the Committee will agree that it would be wrong for us to go back on our pledges, even though hon. Members may not have welcomed the pledge that we originally gave. Furthermore, that would be pandering to at least one of the prejudices of the Opposition.
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The case has been made throughout the debates on the mortgage interest relief limit that an increase to £30,000 helps only some parts of the country, particularly the south-east and London — although the Committee will remember my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) telling us on Second Reading that in his constituency just north of Glasgow the average price of houses is about £27,000. That shows that the incidence of houses costing more than £25,000 is more widespread than just around London. Even if it is the case that houses cost more only in the London area, why discriminate against that area? Why make it impossible by not adjusting tax relief accordingly for people living in that area to buy their houses, just because house prices are more than £25,000?
I think that the hon. Member for Woolwich (Mr. Cartwright) found himself in a dilemma in this respect. Although he was, in theory, against increasing mortgage interest relief—that was what his head told him—his heart and that part of his spirit that helped him while knocking on doors to obtain precious votes told him that he had better go along with political reality and that it was necessary to increase the limit to £30,000 on this occasion.

Mr. Cartwright: In London.

Mr. Ridley: The hon. Gentleman says, "in London", but he would be an unwelcome guest in my constituency if he said, "Yes, I am in favour of increasing the limit to £30,000 in my constituency but not in Gloucestershire. The people of Gloucestershire can go and jump in the River Severn." If we were to have much higher limits in the south-east and in the hon. Gentleman's constituency, where house prices are depressed, we would reach the sad state of what I might call counter-regional policy. We might then have a reduced limit. Perhaps £25,000 is too much for Workington. Would the hon. Gentleman want that reduced to £15,000?

Mr. Cartwright: If the Minister is saying that there is no case for regional variation in mortgage tax relief, why

do not the Government apply that idea in the house purchase assistance scheme, where regional variations and ceilings, with the highest in Greater London and the lowest in Humberside and Yorkshire?

Mr. Ridley: We do not want to introduce more discriminations and distortions into the system. Whatever we do in other areas, we would not wish to introduce regional distortions into the tax system. If those distortions are such as to give greater advantage to the more prosperous parts of the country, they would be bitterly resented, and rightly so, in many parts of the Committee. We are right to stick to a national limit. The only question remaining is what that national limit should be.
The hon. Member for Blackburn said that the cost of mortgage relief was £2·3 billion. The truth is that in the current financial year it is likely to be £2·7 billion of which clause 3 accounts for £50 million—I am accused of trivialising everything but that is a small proportion of £2·7 billion—rising to £75 million and to £100 million next year, 1984–85.
I wish to consider the limit as it affects the change in house prices nationally and the assistance given to housing in the private and public sectors. The house price limit of £25,000 was introduced in 1974. If that figure were increased in line with the retail price index, it would now be about £80,000. If it were increased in line with the change in the house prices index, it would be about £60,000. We propose to go not to half the RPI increase but to half the house prices increase. Either the Labour Government greatly overdid the limit in 1974 or we have been a little slow and hesitant to increase it by this small amount in the Budget. Whatever view one takes, it must be right to go to at least half the increase of house prices.
Those figures provide strong evidence against what was said by the hon. Members for Blackburn and for Woolwich, that the existence of mortgage interest relief pushes up house prices and that the more the Government give the more house prices are pushed up. In the past nine years house prices have not increased by anything like as much as the retail price index, despite the fact that there has been generous mortgage interest relief which extends not only to the basic rate but to the higher rates of tax.
Mortgage interest relief this year is expected to cost £2·7 billion. Subsidies to council houses are expected to cost £0·85 billion. Housing benefits to council tenants are £1·90 billion and rent allowances to tenants of private rented property are £0·35 billion. Those last three figures total £3·10 billion. Although the figure for mortgage interest relief and the figures that I subsequently gave are not directly comparable, the fact is that we are spending roughly the same sums of money on those who rent or rely on council houses as on those who are building or buying their own houses. That is a measure of some equality and a reasonable position.
The hon. Member for Blackburn referred to the Treasury and Civil Service Committee report. I can be as critical as I like of that report because it did not appear in the name of any right hon. or hon. Gentleman—it was published but not endorsed by the Sub-Committee. The report suggested that the cost of mortgage interest relief should be counted as and subject to normal controls over public expenditure. It is not public expenditure in many senses because it is not demand determined. As council house subsidies, housing benefits and rent allowances are demand determined, I do not believe that cash limits


would be a suitable way of dealing with this matter. It is for Parliament to decide on a level of relief and on a limit to the amount of relief and then to accept the consequences in terms of expenditure, just like any cemand-determined expenditure.
The issue boils down to whether this is the right limit. I believe that we are not far away from the right limit. The hon. Member for Truro (Mr. Penhaligon) asked whether it is right to extend the relief to higher rates of tax. He mentioned one of the great truths of taxation, which is that the higher one's income the more tax one pays and the more benefits one receives from tax relief.
This is the counterpart of the rich paying the greatest through tax. Any tax relief is bound to benefit the higher more than the lower income people. It must be so. We are talking here only about tax relief; it is only by a mixture of grants and tax relief that one can achieve a different objective. Just as a different objective was achieved in relation to children by abolishing tax allowances and going to child benefit, so it would take a move of that sort to change that basic fact.
The Government believe that it is right that we should make mortgage interest deductible at the higher rates as well as at the basic rate, and I thought that the hon. Member for Truro ended with a revealing remark when he said that, even from the point of view of his constituents, it would be a better deal to limit it to the standard rate and increase the limit to £35,000, in a way betraying the fact that he is quite happy to see the limit go up. Indeed, as I listened to his speech, I thought that his criticism of the £30,000 limit lacked that conviction which it is the hallmark of a good Liberal to show.

Mr. Penhaligon: Be it in my constituency, in Gloucester, London or elsewhere, if somebody takes on a property—that is, a mortgage corrmitment— which one assumes he could handle the day on which he took it on, and if while in possession of that property his income goes up from, say £10,000 to £40,000 a year, the amount of money which the Government give him to help him to purchase that property doubles during that period. If the Minister is saying that that is an accident of tax and that the Government are maintaining it because it is difficult to know what else to do, that is one thing. But I fear that the Minister is saying that he believes it to be a justifiable use of the £2·7 billion to which he referred earlier. If he were to say the latter, I might fundamentally disagree with him.

Mr. Ridley: It applies to any tax relief. It applies also to life insurance premium relief. If one suddenly finds that one's income has doubled, one can double one's life insurance and get twice as much, or even more, tax relief for that purpose. It applies, for example, to superannuation and retirement annuity relief. It used to apply to other reliefs until the Government phased them out. It is a fact of life that with a tax relief the benefit will inevitably be the greater for the people who pay more tax at all stages.

Mr. Robin Cook: I must press the Financial Secretary further on this point. Is it inevitable that it will benefit most those who pay the highest rates of tax? The question raised by the hon. Member for Truro (Mr. Penhaligon)—the question was raised also in the Treasury Select Committee — is whether it is possible to limit that relief to the standard rate and, if that is possible, is it not desirable to do it?
Whatever doubts there may have been in the past as to whether that was possible, with the advent of MIRAS it is now clearly possible. Indeed, the difficulty after MIRAS arises not in relation to who is getting the higher rate of tax band relief, but to the fact that relief at the standard rate goes to everybody. The problem is to retain staff at the Inland Revenue to work out who should be entitled to additional benefit over and above the standard rate.Surely, therefore,it would be not desirable but possible to limit the relief to the standard rate.

Mr. Ridley: I would not deny that it would be possible. Nobody has argued that it would be impossible or immensely expensive or complicated. It is something that MIRAS is coping with and I will only correct the hon. Gentleman in pointing out that the other problem with MIRAS has been with mortgages of more than £25,000, and to a large extent that problem is met by increasing the limit to £30,000, though if mortgages tend to creep up over £30,000 again that problem will arise because part of the mortgage does not attract tax relief. That is another argument in favour of the clause.
I would not deny that it would be possible to remove mortgage interest relief at the higher rates of tax. I am simply saying that it would not be desirable so to do. The Government wish to maintain the present situation and I believe that it has been partly responsible for the very large increase in home ownership. The fact that 80 per cent. of people now aspire to own their homes shows what an immensely successful policy this has been. As people go up the ladder, they can change from a smaller to a bigger and better house. The Government welcome that, and if the clause makes a small contribution to increasing that the Committee will want to support it.

Question put and agreed to.

Clause 3 ordered to stand part of the Bill.

Clause 4

LOANS OBTAINED BY REASON OF EMPLOYMENT

Mr. Robert Sheldon: I beg to move amendment No. 6, in page 3, line 13, leave out from 'above', to the end of line 16.

The Second Deputy Chairman (Mr. Paul Dean): With this it would be convenient for the Committee to take amendment No. 7, in line 28, leave out sub-paragraph (b).

Mr. Sheldon: We now come to anti-avoidance measures concerned with mortgage interest relief. It is a pity that we did not have a better opportunity to discuss these issues in the way in which we normally discuss all such technical details—that is, upstairs in Committee—but we understand the reasons for that.
The amendments concern the question of a director getting an interest-free loan because of his employment. Such a person buying a house or land—or operating under certain other qualifications by which he can obtain relief—has one interest-free loan and tops that up by getting another loan, this time bearing interest. With the limit going up to £30,000, it makes more sense for him to have not only his original interest-free loan provided by the company for which he works—getting it because of his employment—but to get another one that is interest-bearing. Mortgage relief under the provisions we are


discussing will cover the interest-bearing loan first and then, and only then, go on to the interest-free element of the loan.
What will happen if. instead of an interest-free loan, there are two rates of interest? In the one instance we have had complete protection of the revenue in that a loan was provided at a rate of interest that represented a benefit for the director. How will it apply where there are two rates of interest?
It will be seen that the amendments cover land, caravans and houseboats. We included caravans and houseboats in the extended legislation for mortgage relief some years ago. I am not sure how it will fit in with two mortgages— I should have thought it rare to get two different mortgages on, say, a houseboat—and perhaps the Financial Secretary will enlighten us on that. Do those provisions appear purely as precautionary matters, or does the right hon. Gentleman have any cases in mind? If so, I should be delighted to hear them because some interesting consequences might arise. We are all aware of the nature of avoidance in certain areas. I should be surprised if it applied here, but I await the right hon. Gentleman's reply.

Mr. Ridley: The clause seeks to deal with a drafting defect in the law whereby it has been possible for someone to take out both a £25,000 interest-bearing mortgage and at the same time to have an interest-free loan from his employer while not being subject to benefit-in-kind taxation on that loan. That means that the individual is able to achieve the effect of having two wallops of mortgage interest relief. That is something that the Government believe to be wrong, and the purpose of the clause is to restrict the £30,000 mortgage interest relief, as it will be now, to one go for each individual. The technical defect to which I have referred has been exploited to some extent and we wish to stop it.
What happens if there is not a zero-rate of interest on the employer's loan but a cheap rate of interest or a minimal rate of interest? Under the law as it stands, that would not enable the borrower to achieve the effect of having a loan from his employer and an interest-bearing loan, both being relieved, as it were, of the obligation to pay tax. The loophole arises only if the loan from the employer is interest-free.
I agree that there is some difficulty in understanding the clause, which is highly technical. The amendments relate to the part of the clause that deals with bridging finance. From the beginning of mortgage interest relief one was allowed, hitherto, to have £25,000 for the purpose of buying one's only or main residence. If an individual sets out to sell that house and to buy another house, and by misfortune has to buy the new house without being able to sell the old house—a trap which many fall into by bad luck more often than bad management—he is able to take out another loan of £25,000 and obtain interest relief on it for one year or such longer period as the Revenue may agree is reasonable having regard to the circumstances. That will cover him for the period while the first house is being sold.
In designing the clause it was necessary to take account of the possibility that there would be bridging loans to be taken care of, and we did not want to disallow the interest

on the bridging loan, whether it is interest-bearing from a building society or bank or interest-free and not to be charged to benefit-in-kind legislation from an employer.
This is a common problem because with greater industrial mobility many middle managers are required to move home. They have to find another house, buy it and move as quickly as they can. This means that employers are more and more inclined to extend to them a bridging loan to help them buy a new house. These loans are usually interest-free. We do not want to catch those who are in that position in this proposed legislation and that is the purpose of the two sections that the Opposition seek to amend.
One of the amendments deals with a situation in which there is both an interest-bearing loan and one interest-free loan while the other is directed to a situation in which there are two or more interest-free loans. Either way, the amendments achieve the same objective—I am sure that this is by mistake—of disallowing bridging loans from being exempted from the £30,000 mortgage interest relief.
I hope that that explanation, which I have offered in the simplest language that I can, is not a travesty of the complexity of the proposed legislation. I hope that it is intelligible. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) asked how one could have a £60,000 houseboat. It is a question that I am unable to answer completely although I suppose that it is possible to have a bridging loan on a houseboat. However, it might be easier to move the houseboat and not bother with a bridging loan.

Mr. Sheldon: I am grateful for the explanation offered by the Financial Secretary. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 ordered to stand part of the Bill.

Clause 5

RELIEF FOR INVESTMENT IN CORPORATE TRADES

Question proposed, That the clause stand part of the Bill.

Mr. Robert Sheldon: Clause 5 deals with the business expansion scheme. The Committee will recall the generosity with which we allowed so much of the Finance Bill to go forward before the end of the previous Parliament. In particular, schedule 5 to the Finance Bill 1983 was an example of generosity almost unparalleled by any Opposition. We allowed more than 13 pages of business expansion schemes, which were passed with the minimal amount of discussion because of the exigencies of time. We considered it to be so important that small businesses were assisted that we permitted this measure to proceed, although we expressed our grave disquiet about the way this type of legislation was being brought forward. That disquiet was justified.
We have here a range of further enactments that deal with some of the errors in that hasty legislation. There is the relief as it applies to shares issued after 5 April and the need to ensure that the residence requirement remains throughout the year and that the operation is one within the United Kingdom.
In total nine provisions were omitted from the previous Finance Bill. I wish that I could say that they are all the errors in that legislation. However, I fear that many more will come to light, because we still have not given the


legislation the necessary scrutiny and investigation. It is the task of the Standing Committee on the Finance Bill, normally sitting upstairs, to examine the Bill in great detail and to question the Ministers concerned. But this kind of examination must await next year's Finance Bill. There will not be the opportunity this year. I am sure that there will be more measures of this kind, if only to close certain loopholes that will be discovered and which will be considered by the Standing Committee on the Finance Bill sitting upstairs.
What information does the right hon. Gentleman have on the numbers of these business expansion schemes and their cost as of now? Can he give us something of an interim report? Obviously, it will be only sketchy,  but I would not expect anything detailed. Anything that can add to our informaton and understanding of these matters will always be welcome. I am sure that if the right hon. Gentleman can give us that information he will be happy to do so.

Mr. Ridley: I pay tribute to the Opposition for their —I am not sure that "unparalleled generosity" are the right words — public spiritedness in allowing this legislation to reach the statute book before the election. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) rightly said that it was untried and untested. I am genuinely grateful to him for allowing that, because this is an important relief which may be fruitful for industry and, therefore, for the creation of jobs.
I accept that it was not proper for the measure not to be subject to parliamentary debate, amendment and question. I was pleased that we were able to tackle a Ways and Means resolution on this clause and schedule which opened up the subject of business expansion schemes for amendment and debate. It is the only Ways and Means resolution which is not restrictive. It would have enabled all matters about the business start-up scheme to be discussed.
8.30 pm
Although I am sure that the Committee will appreciate that we tried to keep the Bill to a minimum and restrict new clauses by the tight bounding of resolutions, we nevertheless made it wide in this case for the reason that the right hon. Member for Ashton-under-Lyne gave. I freely admit that it is a fairly major piece of complex legislation and that we made some errors in the drafting of the Finance Act 1983. It seems right today to take the opportunity to do two things—first to open the subject up for debate and, secondly, to put right the errors that have been identified.
I shall willingly explain those matters when we come to the schedule. The right hon. Gentleman has tabled two amendments which will enable me to do that. There are a number of wider issues—technical rather than drafting — in relation to the business expansion scheme about which hon. Members have asked. They could have raised them today. I do not take the fact that there are no such amendments as an endorsement of universal approval of the business expansion scheme, but I draw attention to the fact that the Government have given that opportunity. We shall certainly be listening to any advice and opinions and will be ready to consider any suggestions in time for next year's Finance Bill in the absence of any amendments to this Bill.
It is an advantage to have the scheme on the statute book and that people should have the benefit of starting

expansion investments during the current financial year. If more defects come to light, we shall have to be ready to try and remedy them next year. Of course what some people see as a defect, the Government see as one of their major safeguards. So I am not giving a blanket undertaking that we shall give way on everything that is put before us. However, we are ready to consider any suggestions.
The right hon. Gentleman also asked about the effect so far of the business expansion scheme. I cannot give him any concrete information because the scheme has been in operation for a relatively short time only. The scheme requires taxpayers to make claims usually in the year after they make the investment. The scale of the claims that will be made for business expansion scheme investment, some of which may not be allowed, will not be clear until perhaps more than a year after the close of a financial year. We are in no position to give firm figures, but so far as we know, the cost is running at about £15 million. It was partly because that amount was disappointingly small and partly because the defect of requiring the company to be new became plain, that my right hon. Friend thought it was right to expand the scheme to cover all unquoted companies. There is no doubt that that major expansion of the scheme will result in considerably greater expenditure and greater tax relief being granted. The memorandum accompanying the Budget contained an estimate for that purpose of £75 million a year for a full year.
I hope that that information, which is the latest that we have, is of some help to the right hon. Gentleman. I undertake to let him have more accurate information as soon as it becomes available.

Question put and agreed to.

Clause 5 ordered to stand part of the Bill.

Schedule 1

AMENDMENTS OF PART I OF SCHEDULE 5 TO THE FINANCE ACT 1983

Mr. Robert Sheldon: I beg to move amendment No. 14, in page 12, line 11, leave out sub-paragraph (a).
This is a probing amendment. It sets out to establish what the words in paragraph 3(a) mean. There is a considerable problem about some of the paragraphs, as I have mentioned before. There is a problem with nine provisions in the schedule as well as the two provisions mentioned in amendment Nos. 14 and 15, which I have tabled for the purpose of obtaining from the Financial Secretary information about what they involve and how they are determined in the cases that he has in mind.

Mr. Ridley: The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) asked what paragraph 3(a) did. Companies that qualify for business expansion scheme relief are allowed to have subsidiaries, but they must carry on qualifying trades under the Act. Those trades must be carried on wholly or mainly in the United Kingdom. Schedule 5 to the Finance Act 1983, quoted in schedule 1, states that a company must be
a company whose business consists wholly of … both the holding of such shares or securities, or the making of such loans and the carrying on of one or more qualifying trades.
After "carrying on" we suggest the insertion of the words:
wholly or mainly in the United Kingdom".
The parent company must carry on its trade wholly or mainly in the United Kingdom, but the legislation was


drafted defectively, so that it was not necessary for its subsidiary to be carrying on its trade wholly or mainly in the United Kingdom. We do not want to grant relief to investors in companies that operate abroad. Neither the holding company nor the subsidiary will be able to obtain relief unless it operates wholly or mainly in the United Kingdom. That raises an issue of principle to which we must return later.
It is possible that the company that started up in the United Kingdom might do well and expand its production and then find that it has to have a subsidiary overseas to market its products, and repair and service the goods that it makes. It might find that the overseas subsidiary becomes more important than the home manufacturing base in terms of the numbers employed and the capital used. Nevertheless, it is a British company and we must ask ourselves whether we should continue to give relief in those circumstances, particularly if the company turns its overseas company into a subsidiary. The Committee will be familiar with the fact that many foreign countries almost make it a condition of doing business that one has to establish a manufacturing unit to make one's product there. If that pistol were to be pointed at the head of a company that was successful under the business expansion scheme, it would lose its relief if it complied with the requirements of the overseas customers. That raises a point of some difficulty, which I do not propose to answer now. The paragraph to which the right hon. Gentleman referred will restrict for the moment the business expansion scheme to companies that carry out their trade wholly or mainly in the United Kingdom. That in no way prevents exports. If a company is located in the United Kingdom and operates under the business expansion scheme it can export 100 per cent. of its production. That is not what we are getting at. If slightly more than half of a company's assets are located here or if slightly more than half of its employment is in Britain, it would qualify and meet the definition of being
wholly or mainly in the United Kingdom".

Mr. Peter Bottomley: Are we getting to competitive bidding between countries or does this have more to do with the implications of taxation? Should we be more worried about the effectiveness of the business start-up scheme, or is this part of the double taxation arrangements, which confuse me a great deal and, I suspect, the Committee? It might be helpful to know the category with which we are dealing and the circumstances surrounding it.

Mr. Ridley: By accident, we have created a dilemma. We all agree on the principle that assisting investment in small and unquoted companies in the United Kingdom is excellent. The more we refine, expand, extend and develop the scheme, the more we find problems at the periphery. The pressure will come from companies that are successful under the scheme, establish overseas subsidiaries and discover that they are debarred by this paragraph from continuing to qualify for relief if the overseas subsidiaries do not meet the special conditions. However, they will argue that it must be good business to meet the market and set up subsidiaries or trading organisations overseas to meet the needs of customers.
Why, then, should they be penalised for doing that? That is a dilemma that the Committee must return to another time.

Mr. Kenneth Carlisle: I apologise to my right hon. Friend for not being here to listen to him earlier. He touched on small businesses and the relevance of taxation of them. The Treasury should have due regard to development land tax and the rates levied on small businesses. I suggest that it is not possible to divide one tax from another. One must examine the effect of the burden of taxation as a whole on the expansion of small businesses. I hope that the Government will examine that, perhaps in another Finance Bill. If we are to relieve small businesses of the burden on them and provide the conditions for employment in them, we must examine the problems that prevent them from taking on young and skilled people.

Mr. Ridley: I am constantly amazed at the ingenuity and compassion of my hon. Friend the Member for Lincoln (Mr. Carlisle). He has succeeded in mentioning development land tax where some of my right hon. Friends have failed. I assure him that the Government are conscious of its effects and will continue to watch its effect on small businesses. Companies that might benefit from the business start-up scheme are not necessarily those that will be caught up in development land tax. Having said that, there is one small business that will be caught up in the tax. My hon. Friend will be glad to see that there is a special clause in the Bill that deals with that. We shall consider it later. That shows how sensitive the Government are to the important point that he raised. I hope that the right hon. Gentleman is happy with that explanation and will allow the paragraph to remain as drafted.

Mr. Robert Sheldon: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Robert Sheldon: I beg to move amendment No. 15, in page 12, line 39, leave out sub-paragraph (5).
Again, we are dealing with the amendments to the Finance Act 1983 that the Opposition were generous enough to allow through. We are right to ask for a more detailed explanation than has been given about the import of sub-paragraph (5).

Mr. Ridley: The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) seeks to probe the meaning of subparagraph (5), and I am happy to explain its provisions. He will not consider me over-critical when I describe his amendment as a wrecking amendment. It seeks to delete the necessary definition of shares of the same class and, therefore, would make unclear the new rules about the identification of shares on a disposal.
If a person owns shares in a company and has obtained business expansion scheme relief on some, but not all, of them, it is necessary to identify the shares involved in a disposal. The existing legislation treats all ordinary shares in the same way. It identifies shares on a disposal, first with those on which business start-up scheme relief has been given, if there are any; secondly, with those on which business expansion relief has been given, if there are any; and, thirdly, with shares on which there has been no tax


relief. I shall call those categories A, B and C. Within them, the identification rules laid down in the schedule are on a first in, first out basis.
Many hon. Members will remember the trouble we had with capital gains tax indexation and the pooling rules. I am sorry to introduce such an unwelcome note in my answer to the right hon. Gentleman, but that pattern of identification can produce anomalies. Where a company has more than one class of ordinary share and the classes have different values, there could be differences in the nominal value. Some of the shares could be lop shares and others £1 shares, and some could carry voting rights while others did not. Therefore, we are trying to make the rules fairer by considering each class of share separately. If there were a disposal of the 10p shares, the Committee will agree that it is right that the identification is only with the other lop shares and not with the £1 shares—that is, that identification is within one class.
To decide whether shares are of the;.same class, we must again follow the capital gains tax rules and find out whether the stock exchange would put them in the same class. That is the definition that we shall adopt for the class of the share. The method is complicated, but I hope that I have demonstrated the point of it to the right hon. Gentleman and that he will not press his amendment because, if he succeeds in carrying it, he will make what seems complicated less complicated, but, equally, he will make an attempt at complete fairness less fair.

Mr. Sheldon: The purpose of the amendment was to secure the clarification that the right hon. Gentleman has provided. If I understand it correctly, he has said that the identification will be the same as before but within the same class, and that it uses the capital gains tax rules. If that is the position, I am content, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 1 agreed to.

Clause 6

ALLOWANCES FOR DWELLING-HOUSES LET ON ASSURED TENANCIES

Question proposed, That the clause stand part of the Bill.

Mr. Robin Cook: This clause follows a similar clause in the Finance Act 1982, which provided for capital allowances for dwelling houses provided by private landlords under the assured tenancy scheme. I am bound to repeat the point made last year when the scheme was introduced—-that it shows a striking generosity towards the private landlord who provides assured tenancies, who, over five years, can set against tax the entire cost of constructing the dwelling. That striking generosity contrasts markedly with the stringency with which the Government approach local authorities, almost every one of which would dance with joy were the Government to offer it the possibility of writing off over five years its debt for constructing the few council houses that have been built under this Government.
The provision is strikingly short on rationale. The concept of a capital allowance was born in industry, and when applied to industrial building a capital allowance makes sense because over the lifetime of a factory its value will depreciate and it is not unreasonable to give those who

constructed the factory a depreciation allowance to set against tax. However, a dwelling house can he expected to appreciate in value, and it is anomalous to extend a capital allowance to an asset that will increase in value. I warned the Government last year, and I repeat the warning now, that, having let this matter under the net, they will find it increasingly difficult to resist pressure from their Back-Bench Members and others to extend capital allowances to other buildings and dwellings, most obviously to hotels.
There is no doubt that the introduction of capital allowances for assured tenancies has had a significant effect in stimulating companies to take advantage of such generous treatment. Last year, fewer than 20 companies had come forward to register an interest in an assured tenancy scheme, but as at July 1983 there are 71 such companies. I reminded the Committee last year that the then Minister of State for Housing and Construction said that the bodies that he had in mind for approval under the assured tenancy scheme were pension funds, insurance companies and building societies which would operate through unregistered housing associations.
I told the Committee last year that few of the companies that had registered fitted what the Minister had in mind at the time. I can now confirm that equally few companies out of the 71 that have registered fall into the category of companies which the Minister had, to quote his words, "in mind". Of the 71 bodies that have registered an interest in an assured tenancy, there is only one housing association and no building society. The great mass of companies coming forward to register assured tenancies are commercial property companies with a speculative interest. They are not pension funds, insurance companies or building societies; they are companies extending their property activities into this area.
I have a question for the Financial Secretary. If he cannot answer it tonight, I should understand, but perhaps he would answer me soon. How many units does this list represent? I now know that we have 71 bodies approved by the Financial Secretary, but how many units of housing do these 71 bodies hope to provide? After all, this is an experimental scheme, with a limit of five years. It would be interesting to know how well the experiment has developed.
Subsection (5) limits the capital allowance to those bodies where the approved body is a company rather than a partnership of individuals. The Opposition see nothing wrong in limiting the capital allowance to a company in this case. Indeed, unless the approved body is paying corporation tax, it is difficulty to see how it can benefit from the capital allowance. However, I find it strange that the parent Act—the Housing Act 1980—provides that the only bodies that can provide assured tenancies are those bodies approved by statutory instruments by the Minister for Housing and Construction. Over the past 18 months, the Minister has laid a dozen orders adding to the approved bodies for assured tenancies. As far as I can see from my list, all the bodies are companies and none is a partnership of individuals.
This prompts a double-pronged question: first, why is this safeguard necessary; secondly, if it is felt that it would be inappropriate to extend this relief to partnerships of individuals rather than companies—I can understand and share that reservation — would it not be vastly more sensible for the Minister of State, in deciding which bodies he approves, not to approve partnerships of individuals


and to confine his approval to companies? It appears undesirable that we should be creating, by virtue of this clause, a two-tier set of approved bodies—one a set of approved bodies approved by the Minister and by the Treasury so that it can get capital allowance and the second a set of bodies approved by the Minister but not approved by the Treasury, although registered for assured tenancies, and thus unable to obtain capital allowances. I find it difficult to conceive that a particular group of individuals would be perverse enough to proceed, and to seek the whole panoply of ministerial approval, with the assured tenancy scheme if they cannot receive the capital allowance that they could obtain were they to set about forming a company.
Therefore, I am puzzled by subsection (5) and would appreciate it if the Financial Secretary could enlighten the Committee before we approved the clause.

Mr. Ridley: I am grateful to the hon. Member for Livingston (Mr. Cook) for the way in which he put his points and asked his question, which is correct and pertinent. I hope to be able to give him an answer that at least explains the point, although it may not entirely satisfy him on the major point that he raised at the end of his speech.
The hon. Gentleman said that he would like to know how many units had been constructed as a result of this relief and, as far as my information goes, it is over 100. However, I shall ask my hon. Friend the Minister for Housing and Construction to send a letter to the hon. Gentleman containing fuller information. The hon. Gentleman has always been unhappy about the scheme. In this case, however, far from others getting under the net as a result of the relief in last year's Finance Act, people who in theory were doing so hitherto will no longer be able to do so.
9 pm
Out of the 72 applications approved, one was a partnership. The legislation was not designed to cater for partnerships, but under the assured tenancy legislation my hon. Friend the Minister for Housing and Construction has no power to refuse an application on the ground that the applicant is a partnership rather than a company. If the applicant meets the other criteria as to bona fides, financial status, and so on, my hon. Friend does not have the power to discriminate in that way. Due to some lack of communication between two Departments in Whitehall, partnerships can be approved and possibly must be approved if they meet the other conditions.
The legislation provided only for capital allowances. As the hon. Gentleman rightly said, capital allowances are an appropriate form of assistance to companies that pay corporation tax, but they fit ill, to say the least, in the hands of partnerships or individuals. I recognise that individuals can sometimes obtain something like a capital allowance, but the intention was to restrict the relief to companies. Partnerships were not excluded from the original legislation, due to lack of communication between the two Departments. This provision attempts to put the matter right.
The other two main parts of the clause merely correct defects in the drafting of last year's legislation.

Mr. Robin Cook: I am grateful for that explanation. If individuals have found a device allowing them to obtain

capital allowances to set against income tax, I am heartily relieved that the Treasury has spotted the defect and I wish the subsection godspeed. I should, however, appreciate a letter a year hence telling me whether that partnership of individuals proceeded with the construction of dwelling houses after the loophole had been blocked.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Clause 7

RELIEF FOR LOCAL CONSTITUENCY ASSOCIATIONS OF POLITICAL PARTIES ON REORGANISATION OF CONSTITUENCIES

Question proposed, That the clause stand part of the Bill.

Mr. Michael Stern: Political associations hold land and property in a variety of ways. The normal way is by trustees, but some political associations in England and Wales hold land through companies, be they companies limited by shares, limited by guarantee or with unlimited liability. I cannot, of course, speak for the methods of holding land in Scotland.
Subsection (4) provides for relief when there is a transfer of such property directly between one association and another or from an association to a company and back to an association. It does not seem to provide for an association not holding property directly but holding it through a company. Various circumstances could arise in which a political association could be denied relief—I assume that the intention of the clause is to give relief —because of the structure by which it holds its land.
If the existing association and the new association hold land through trustees, that is fine. However, it will receive no relief under this clause if one of the associations holds land through a company or if it is necessary either for a company to have a change of shareholders because of the change of associations or a change of guarantors. Instead of trying to construct complex legislation for what may be one or two isolated cases, will my right hon. Friend consider the possibility of an extra-statutory concession, if the clause is agreed, so that the spirit of the relief in the clause is given to those political associations that we may not yet know have problems as a result of boundary redistribution?

Mr. Ridley: My hon. Friend has raised a matter of extreme erudition, and I am grateful to him for having given me warning. I confirm that if this legislation does not include all constituency associations affected by boundary changes — whatever political party may be involved—it is our intention to put the matter right and have it on all fours.
It would have been difficult, lengthy and complex to legislate for all possible forms of private ownership. The clause deals with what we thought, from consultations with the three political parties, was the most common form in which property is held by constituency associations. In addition, there is an existing statutory concession extending capital gains tax roll-over relief for replacement of business assets to the case where the property is owned by a company on behalf of a non-profit making organisation, and the organisation itself holds all or nearly


all the shares in the company. That may conceivably meet some of the cases that we have not covered in the legislation.
We should be prepared to examine sympathetically the case for extending the concession to meet the circumstances mentioned by my hon. Friend, but whether any extension is necessary and, if so, what form it should take, will depend on the nature of the problems that arise in practice. Indeed, we should need to find an association of the kind described by my hon. Friend before we could prescribe a remedy to deal with the ill, if the ill applied to the association in the first place. I assure my hon. Friend and the Committee that we shall be guided by the underlying principle of the legislation to provide statutory relief for capital gains tax and stamp duty for any association of any party that is affected by boundary changes. If further action is necessary it will be provided by further statutory concessions, as appropriate.

Question put and agreed to.

Clauses 7 and 15 ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. Ridley.]

Committee report Progress; to sit again tomorrow.

Overseas Development and Co-operation

The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Raymond Whitney): I beg to move,
That the draft International Bank for Reconstruction and Development (1979 Additional Increase in Capital Stock) Order 1983, which was laid before this House on 3rd May, in the last Session of Parliament, be approved.

Mr. Deputy Speaker (Mr. Ernest Armstrong): With this it will be convenient for the House to consider the second motion:
That the draft International Development Association (Special Contributions) Order 1983, which was laid before this House on 3rd May, in the last Session of Parliament, be approved.

Mr. Whitney: The purpose of the orders is to authorise an increase in our subscription to the capital stock of the World Bank for the take-up of shares allocated on the basis of 250 to each member and to make a United Kingdom contribution to help sustain the IDA's lending programme in its fiscal year 1984.
With your permission, Mr. Deputy Speaker, I want to say a word or two about both those institutions and our attitudes towards them before describing the orders in detail.
The International Bank for Reconstruction and Development, which we commonly know as the World Bank, is one of the twin institutional pillars proposed in the Bretton Woods conference in July 1944 to meet the immediate financial problems of those countries ravaged by the second world war. It was a bold and imaginative plan which was heavily backed by the United States and the British Government. The House responded by passing an Act in 1945 enabling the United Kingdom to become a founder member and the second largest shareholder.
Since then, the World Bank has changed its emphasis to meet the challenging needs of the world's developing countries. It has become the world's premier international institution for Third-world development. It now has a membership of over 140 countries, and has accumulated unrivalled intellectual and technical resources. Furthermore, it possesses knowledge gained first-hand of the whole range of developing countries' problems, and an operating experience that is second to none.
The bank finances its lending operations primarily from its borrowings in the international capital markets. A substantial contribution to the bank's resources also comes from its retained earnings and flows of repayments on its loans.
We strongly support the bank's adherence to the key and central aim of the alleviation of poverty, its concentration of resources in key sectors—agriculture, rural development and energy—and the restriction of its lending capacity to low income countries. We note also with satisfaction the importance that the bank attaches to maintaining its extremely high rating in the world's capital markets and the strict observance of its role in supporting only developmentally sound projects. Above all, we welcome the lead that the bank takes in conducting a dialogue with recipient countries with the aim of ensuring implementation of appropriate local development policies.
The bank's articles of agreement established the bank as an intergovernmental institution, corporate in form, with all its capital stock being owned by its member Governments. The original authorised capital stock was $10 billion, the paid-in element being 20 per cent. and the balance being on call. That was doubled in 1979, without any increase in the paid-in portion. Since then, special increases to allow new members to join and to adjust relative shareholdings in the bank, and a selective increase based on IMF quotas, which did not affect the United Kingdom subscription, brought the bank's authorised capital stock, immediately prior to the 1979 general capital increase, to $34 billion.
The 1979 general capital increase, when fully subscribed, will enable the bank to expand its capital base to around $80 billion. The draft order for the purchase of additional United Kingdom shares — the International Bank for Reconstruction and Development (1979 General Capital Increase) Order 1983 — was approved by the House last December, and the order now before the House should be viewed in conjunction with that.
This further order simply relates to an increase in the bank's capital stock for the purposes of avoiding dilution of voting resulting from the general capital increase. Shares have been allocated on the basis of 250 to each member, have no paid-in element and can be taken up at any time before July 1986. The order's purpose is to enable the Government to make a further subscription to the capital stock of the bank of sums not exceeding the equivalent of US $30,158,750, being the price set by the resolution of the board of governors in respect of 250 shares. This sum will be callable capital.
I now turn to the International Development Association, or IDA as it is generally and more popularly known. It is the World Bank's soft loan affiliate, and has been in existence since 1960. The Government have always been a strong supporter of IDA, which has a remit to help the poorest countries. Its resources are provided in the form of grants by the richer countries, and these are usually pledged every three years within the framework of internationally agreed replenishments.
IDA provides credits to its borrowers at no interest and with a maturity period of 50 years. Those credits attract modest service charges on disbursed and undisbursed balances. The majority of IDA flows go to Commonwealth countries and to Pakistan, totalling in all some 65 per cent. The main focus of attention is on agricultural and rural development projects. Basic infrastructure, resource development and non-project lending are other main sectors. The draft order before the House relates to a United Kingdom subscription for IDA's fiscal year 1 July 1983 to 30 June 1984—the gap between the current replenishment, IDA 6, and the next one, IDA 7.
I shall give some of the background to the operation of the current replenishment — IDA 6. The sixth replenishment of IDA, which totals US $12 billion provides the association with lending resources for a three-year period to 30 June 1983. Details of IDA 6 were published in Cmnd. 7900, and the United Kingdom's contribution is £555 million. The United States' contribution was approved in full by the United States Congress, but on the basis that it would be phased over four years instead of the three allowed under the sixth IDA replenishment. This has now caused a shortfall in IDA's

commitment authority in its fiscal year 1984—that is, between 1 July 1983 and 30 June 1984—by which time the majority of donors will have completed their IDA 6 contributions, and before arrangements for IDA 7 replenishment can be made.
On 26 October 1982 the executive directors of the World Bank approved a resolution authorising arrangements for special contributions to help sustain IDA's lending programme during its fiscal year 1984. The resolution has been published as Cmnd. 8867. Donors' contributions to these special funding arrangements can be through one of two mechanisms: first, a financial year 1984 account, which will be part of the general resources of IDA, and will carry voting rights which will be provided for at the time of the next general voting adjustment which will take place in IDA 7; or secondly, a special fund which will, for the time being, constitute a fund separate from IDA's general resources, carrying no voting rights and with procurement eligibility restricted to part II, that is to say developing country members of IDA, part I, or developed country, members contributing to the special fund, and part I members contributing to the financial year 1984 account who have deferred receipts of their voting rights in respect of their contributions on the same basis as contributors to the special fund.
It is the intention that the United Kingdom contribution will be made to the financial year 1984 account. The draft order, if approved, gives the Secretary of State authority to make the United Kingdom contribution of £105 million to these special arrangements. This will be done by a promissory note to be encashed over a period of years, with costs being met as they occur from sums voted for overseas aid.

Mr. Guy Barnett: The House will be grateful to the Under-Secretary for explaining the technicalities of the two orders. On previous occasions Ministers have come to the House with equally technical speeches and the House frequently takes the opportunity to range widely over the operations of the International Development Association and the World Bank. For that reason I welcome the opportunity to debate the topic.
I agree that IDA is a vital aid agency because it seeks to meet the investment needs of the world's poorest countries. Such countries cannot satisfy their needs by commercial borrowing and IDA has a proven record of efficiency. An audit last year on 183 projects showed an annual return of about 18 per cent.
I have paid tribute before, and I do so again, to the last Conservative Government, because they recognised the importance of IDA, as did the Minister in his speech today. They recognised the importance of IDA when the Reagan Administration failed to meet their obligations to IDA. Britain played a leading role in pressing America to honour its obligations and by making up the shortfall by bringing forward our contribution.
In that area at least we can be thankful that Thatcherism and Reaganism were not the same. So far in Britain we have hardly seen any manifestation of the backwoods attitude towards aid that has been prevalent for some time in Washington. We have heard little about IDA funding Socialism in the Third world. Aid has not come under threat in Britain from the fudamentalist monetarists who see aid as a distortion of the international market.
I am grateful that in Britain political considerations have not entered into the financing of international institutions such as IDA and the World Bank, but we need assurances about the future, because the future is much more doubtful. That is why today's debate is important.
The Minister said that the Government have always been strong supporters of IDA. I agree with him. I understand that the Minister for Overseas Development is visiting a Third world country and cannot be in the House. He is a strong supporter of IDA. The former Foreign Secretary was also a supporter of IDA, but, alas, he is no longer on the Front Bench.
A rumour has emerged from the people who attended the UNCTAD conference in Belgrade that the gap between Thatcherism and Reaganism may be closing. It has been said specifically that the British Government have told the World Bank that they will not be prepared to repeat the bridging operation which allowed IDA to make up the shortfall in American contributions under IDA 6. If such reports are true, they are disturbing.
I hope that the Government are continuing to put pressure on the American Government about negotiations for IDA 7. I hope that the Under-Secretary can deny categorically that the Government have turned their backs on the possibility—which I believe to be a probability—that the American Government will not support IDA as they should to the fullest extent. I hope that the Government will be prepared under such circumstances to take action to ensure that IDA receives the support that it needs.
A regressive British-American alliance over IDA funding could cripple that agency and do untold damage to many of the poorest people in the Third world. As I have said before, the Government's attitude before the election was constructive. They gave an important lead to the world. I very much hope that, if necessary, they will be prepared to do so again.
The problems of IDA can be summed up simply. Under IDA 6 it received about $12 billion. The president of the World Bank, Mr. Clausen, has said that between $16 billion and $18 billion is needed under IDA 7 if it is to maintain the present level of spending. The increases are required, first, to compensate for inflation and, secondly, because China is now eligible to borrow. If the additional funding is not found, cuts will have to be made in the aid that IDA makes available to the developed countries.
In Belgrade last month, the leader of the United States delegation to UNCTAD, Mr. Kenneth Dam, was reported at a press conference as saying that Tom Clausen's hopes for IDA 7 were unrealistic. At UNCTAD the United States refused to make any commitment to the replenishment of IDA. Therefore we require some assurance about the Government's likely position.
As Mr. Clausen said when he addressed UNCTAD, the future of IDA is uncertain. He said:
The need for IDA is great, the effectiveness of IDA is beyond question, but the political will to support IDA is in doubt … Most low-income countries cannot meet their needs for external capital by commercial borrowing; many low-income countries that borrowed significantly on commercial terms in the 1970s have encountered serious debt-servicing difficulties. Direct foreign investment in the low-income countries has been mainly confined to energy and mineral development, and official institutions are also constrained in their non-concessional lending to low-income countries by creditworthiness considerations. So for the low-income countries, there is no substitute for official development assistance.

The problem of debt servicing arose last night in the debate on international monetary arrangements. My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) pointed out the extent to which export revenue of developing countries is absorbed by debt servicing—for example, Argentina 88 per cent., Brazil 88 per cent., Mexico 59 per cent., and in many other poorer countries between 20 and 50 per cent.
The international debt problem is grave. As my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) said, it will not be solved by the free market system. I know that there is an interest among Conservative Members in the possibilities that may arise as a consequence of private investment and in the contribution that private investment has already made in the Third world. But let no one suppose that such private investment can in any way be a substitute for Government and international action of the sort that has been described.
It is clear that action must be taken at Government and international level to tackle the whole problem of world development. Poor countries are facing the problems of debt charge, which I have described, and worsening teens of trade. The result of that in many countries is that their treasuries are empty. They have had to make cuts in their social services, education, infrastructural expenditure and so on. At the same time they have growing populations, growing unemployment and, as a consequence, social unrest. For those reasons our interests are very much served by strong support for the work of IDA.
The burden of debt in Third world countries must be eased and their terms of trade with the developed world improved. The World Bank receives immense and complementary support from the United Nations development programme. Some hon. Members have recently seen a pamphlet issued by the Centre for World Development Education in which it is made clear that between 1978 and 1982 the British Government's contribution to the UNDP has fallen by no less than 56 per cent. I regard that as a disastrous fall because in many respects the World Bank and the UNDP complement each other. The UNDP can provide management skills, technical skills and co-ordination because it recruits people with technical and professional qualifications. There are many projects in which it wants to become involved but cannot because of the fall in contributions from the rich world.
I believe that the effectiveness of the World Bank is likely to be adversely affected if UNDP is made short of money. The Prime Minister is fond of saying that one cannot solve problems by throwing money at them. I agree with the right hon. Lady. One has to throw money, technical skill and expertise at the problem and ensure that that money is properly and economically spent. That is why I hope that the Minister will be able to reply about the UNDP and the British contribution. I believe that that contribution is complementary to the effectiveness and the work of the World Bank. It is also very much in the interests of this country, the rich world and, indeed, the poor world.
I hope, therefore, that the Government will take to heart the words that I now utter. I utter them because there is a considerable mood of depression in the Third world following the apparent failure of the UNCTAD conference in Belgrade recently. The Third world countries approached UNCTAD with great seriousness and prepared their positions well in advance. They consulted widely,


they presented their proposals with a much more conciliatory tone than ever before and they were prepared also to negotiate. What was the result? "Near disaster" was the description in The Guardian of 5 July, which stated:
The new Zeitgeist in the West, encapsulated in the bland assumption that recovery in the industrialised countries will automatically bolster Third world economies makes it doubtful that any future UNCTAD summits will take place.
Put simply, the United States, West Germany and Britain blocked every Third world initiative at that conference in Belgrade. The main British initiative was to talk of the need to restructure UNCTAD, which is undoubtedly true, but the Third world is talking with increasing desperation of the need to restructure the whole world economy.
When we debated the second Brandt report last April, I mentioned an important document which will be published in September—a document based on the work of a group of experts set up by the Commonwealth, the so-called Helleiner committee. As I said, the report is due to be published in September and my information is that the draft is already prepared and that at the end of the month the committee will be meeting to approve that draft. I am told that it will be an important report which will be discussed at the finance Ministers' meeting in September. It will then presumably be on the agenda when the Heads of Government of the Commonwealth meet later in Delhi.
I hope very much that the Government will study that report with great care, that they will take it seriously and be prepared to take positive initiatives both at the finance Ministers' meeting and at the Heads of Government meeting. A constructive response is needed—the type of response that we saw from the Government over IDA. Now that we have, as it were, the second Thatcher Administration, I hope that we will have that constructive response to some of the desperate, growing problems that affect the Third world.

Mr. Bowen Wells: At the outset I wish to welcome my hon. Friend the Under-Secretary of State to his position at the Department of Foreign and Commonwealth Affairs. When he was on the Back Benches he did not share some of my enthusiasm for the type of action that we are taking tonight to enable the Third world to buy goods from this country and, in so doing, develop this country and their economies. However, I am sure that he will be persuaded by the arguments that are put to him—I thought that the hon. Member for Greenwich (Mr. Barnett) put his case in a constructive way—including mine.
I regret that Mr. Speaker, in collusion with the two Front Benches, has agreed that this debate should be curtailed to 1½ hours. I do not believe that the two instruments should have been put together, but rather dealt with separately, so that there would have been adequate opportunity to deploy our arguments on both orders. However, I appreciate that Mr. Speaker is in the hands of the House, and I leave the matter there.
Adam Smith would have applauded many of the criteria deployed by the IBRD and IDA. The advice of both organisations to the countries to which they lend is, generally, along neo-classical economic lines. On the external side, the IBRD's report emphasises the need for open international trading systems, realistic exchange

rates and the use of world market prices to reflect real opportunity costs. On the internal side, there is an emphasis on appropriate resource allocation, realistic pricing policies, cost recovery and the maintenance of sensible fiscal and monetary policies. I am sure that the Prime Minister would welcome a definition of her economic policies, as outlined in the Gracious Speech, in exactly those terms.
Those are the types of institution and lending policies that we are discussing tonight, and I welcome the efforts being made by the Government to support those institutions. I say that because therein lies not only benefit for the economies to which we are proposing, through the IBRD and IDA, to lend money, but for our domestic economy and employment possibilities in Britain.
I was accused by Opposition Members last night of not knowing what I was talking about. I therefore took the precaution today of arming myself with quotations from people who, over the years, have been recognised as experts. One, for example, is Mr. Gordon Tether, who served as resident economic columnist on the Financial Times, The Observer and The Times. He wrote the introduction to the Centre for World Development Education's pamphlet "Action for Development", copies of which have been received by most hon. Members. He says in his introduction, and I agree wholeheartedly:
Yet it is almost certainly not going too far to say that nothing is going to play a more crucial part in shaping the fortunes of the British people between now and the end of the century than the way in which this aspect of our affairs is dealt with during the lifetime of the new Parliament.
I profoundly believe that economic recovery and a reduction in unemployment in Britain, which is the prime objective of the Government, cannot take place unless due regard is paid to institutions like the IBRD and IDA and support for them is forthcoming.
I say that because we must export to live; 30 per cent. of our gross domestic product is exported. To whom will we export if we cannot export to those who can pay for the goods? The answer is "No one", and if we cannot export, our unemployment will grow. Mr. Gordon Tether continued:
Plainly, nothing would be more helpful in getting our own economies on the move than a sustained and substantial revival in export trade. And the sombre truth is that there can be little hope of that materialising when the countries that normally absorb anything from a fifth to a third of the industrial world's exports— some $300 billion in all —are in such a parlous balance of payments strait that they have no alternative but to cut their imports to the bone and concentrate all their efforts on disposing of what they themselves produce in other countries.
There lies the nub of the argument that I am advancing. I have deployed the argument before in the House and I have brought Mr. Gordon Tether's article with me to support my contention. That is the background to the two orders.
I wish to persuade my right hon. and hon. Friends of the necessity to support the IBRD order and to explain why I support it and why I think that it should go further at a later stage in this Parliament. First, we should remember that we are not taking cash out of our economy for the IBRD quota. We are guaranteeing the borrowing of the World Bank on the money markets. That means that the money comes from world markets and has to be repaid. It does not come from the British taxpayers' pocket. The capital has to be repaid, and the interest, at a commercial rate of interest. That produces the financial discipline which lies behind all the IBRD's investments. It means


that it produces some real developmental projects that benefit the host countries and the countries that contribute to it.
I suggest that my hon. Friend the Under-Secretary of State asks the International Monetary Fund why it does not fund parts of its borrowings in exactly the same way. There seems to be no reason why the IMF should not learn from the experience of the IBRD. As the bank is such a sound lender and borrower it receives the lowest possible interest rates upon the world market. It is thereby enabled to lend on to fund projects in the Third world in a way that means that they are not crushed or overburdened by interest rates and are allowed to prosper.
It should be taken into account that the IBRD is entering increasingly into joint financing. This means that the World Bank is not the sole financier of many of the projects in which it engages. It joins Governments and multilateral and bilateral agencies. It also enters into arrangements with private banking organisations and international companies to provide the money and the technical abilities to provide a project that is meaningful and able to be developed in the country concerned. This is a developing part of the IBRD and it should be very much welcomed by the Government. Nearly 29 per cent. of its finances in the past year were arranged in that way.
If the private banks had wanted to make such great loans to developing countries, would it not have been much better if they had used the IBRD rather than their own judgment, which has proved on occasions to be gravely at fault, and developed joint projects with the IBRD, thus producing real economic development in the countries into which the money was directed?
Over the past year the IBRD distributed 24 per cent. of its funds to agriculture, 14 per cent. to transport, 13 per cent. to power and 12 per cent. to industry. This is a proper and sensible way in which to direct the finance into developing countries, because it is, after all, through the ability to feed themselves and to export crops which cannot be grown in the industrialised world that Third world or tropical countries can most benefit from the trading cycle.
The IBRD has gradually expanded its agricultural investment, on which it has a good record, and this investment should be increased. My continuing theme has been that the IBRD investment stimulates exports from this country. By enabling the Third world countries to buy from this country, the IBRD is providing jobs in this country and in the host country. This means that demand can be realised in the Third world countries for increased crops, products and other goods from Britain. We must continue to sustain this trading cycle through institutions such as the IBRD and the IDA.
Many people have said that the IDA is a grant-giving institution which gives money for which it expects no return. Nothing could be further from the truth. The rate of return required by IDA on its loans or grants must provide the borrowing Government with revenue to meet its obligations or the loan becomes a subsidy. IDA insists that that loan is repaid, albeit over 50 years, but some of these projects take that length of time to be realised.
We can see how successful IDA's criteria are. In "IDA in Retrospect" we find an analysis of the period through which IDA has existed. The average rate of return on capital investment is 17·9 per cent. Many companies in this country would be proud of such a return. The book emphasises that investment in the Third world not only

generates but expands the economies of those countries in a much faster way than any other investment, and stimulates exports from this country.
Some people say that IDA has not been successful. I was asked, after one of the debates in the House, how any country can be said to have been developed through the grants to IDA. We must point first to the prime example of India, which has been one of the largest recipients of IDA money. Through IDA technology, money and disciplines, India has been transformed from a net food importing and grain importing country into a grain exporting country in 30 years. It has been a much shorter period than that, because it took some time before India would and could accept the technology offered by the IDA. A contrast with India is its neighbour—Burma—from which it used to import rice. Burma is now a net food and grain importing country, so successful has IDA been.
There are graduates—India is one of them—from the IDA criteria, because it is only the poorest countries that benefit from IDA. Some of the graduates have become contributors to the IBRD in turn. What a success story. Chile, Columbia and Costa Rica have become contributors to the IBRD. Other graduates are Nigeria, the Dominican Republic, the Ivory Coast, the Republic of Korea, Turkey, Botswana, Equador, Syrian Arab Republic, Mauritius, Swaziland, El Salvador, Paraguay, Tunisia, Jordan, the Philippines, Thailand, Bolivia, Honduras, Indonesia, Cameroon, Egypt, Nicaragua and the People's Republic of Congo. That illustrates the success of these programmes in the host countries to which we have contributed through IDA.
What is the Minister going to do about the seventh replenishment of the IDA which will arise during the course of 1983–84? The negotiations must start now. The American Government have not yet contributed fully to the sixth replenishment. What will the Government and we as a Parliament do to persuade the United States Government and Congress that it is the right and proper course for us to follow? It is the responsibility of Members of the House to do that just as much as it is the Government's responsibility. I hope that hon. Members from both sides of the House will find their way to New York and Washington singing and persuading Congress to pass the IDA sixth and seventh replenishments because of the way it benefits the economies of the United States and this country, if for no other reason.
I want to deal with the United Nations development programme to which the hon. Member for Greenwich referred, which plays a pivotal role in all this. However, let us start with self-interest. For every pound that the British Government invest in the UNDP £2 worth of exports from this country are generated—yet, we have chosen to reduce the amount of money that we pay to the UNDP. I understand the reasons for that. It is a voluntary programme which is not ratcheted to this country's gross domestic product or gross national income. The programme can make out a prima facie case for support from the British Government, whatever economic difficulties the Government may find themselves in.
Will the Minister tell me how the £20 million cut, which I understand is to be expected from the ODA budget, will be reflected in the Government's contribution to the UNDP and to the multilateral institutions as a whole? The ODA must make out a proper case to the Economic Secretary and the Chancellor, which I could do, and which would result in the Chancellor coming, money


bags in hand, to invest in the ODA budget to support UNDP. I hope that those remarks will be borne in mind when the necessary economies are considered. However, do not let the cuts be made blindly and in ignorance. Let us think about what we have to do. Surely that is a programme that should not suffer. We must pursue straightforward remedies for the Third world through the IBRD and IDA. They must invest in the developing countries to make up the loss that those countries have experienced by the drop in commodity prices. In his article Mr. Gordon Tether said:
The message is clear. One way or another, the pace-setting countries—and Britain is well-placed to give a suitable lead—must now attach the highest priority to measures aimed at channelling back to the developing countries the $100 billion per annum they have been deprived of—the equivalent of about a third of their normal export earnings — through lower commodity prices, reduced capital in-flows and record interest charges on their foreign debts. That calls for urgent steps to strengthen their international liquidity, step up economic aid to them, improve commodity markets and halt and roll back protectionist measures.


Those are the remedies that we should pursue. Those are the remedies that will bring economic prosperity to this country as well as the host countries. That is the challenge that presents itself to the British Government on their reelection. That is the challenge that I am certain my hon. Friends will live up to. In welcoming the orders wholeheartedly, I hope that the Government will continue to direct intelligently the money that we use in this most productive enterprise.

Mr. Tom Clarke: It is appropriate that the hon. Member for Hertford and Stortford (Mr. Wells) should contribute to our debate and refer to the United Nations development programme, because today he assisted considerably in the arrangements for the publication of an interesting booklet on the development connection, which is relevant to the debate. I thank him for that assistance. The booklet is interesting not just because most of us welcome it but because yet again we have information that suggests that the Government do not sat the priority on Third world matters that we in the Opposition would like and that the British people would expect.
Mr. Arthur Brown, deputy administrator of the UNDP, was present today at the launching of the document. He referred to the introduction to the document, which states:
Britain, for its part has cut its contribution to the UNDP more severely than almost any other major donor country.
That statement is supported on page 9 of the document, on which we can compare Britain's contributions for different years. We contributed £25 million in 1978, £28·5 million in 1979, £15 million in 1980, £17·5 million in 1981 and £18·5 million in 1982. On page 10 we read that France, America and Japan substantially increased their contribution in dollars, yet Britain's contribution decreased from $47 million in 1978 to $28 million in 1983.
As Mr. Brown rightly said today, if one is consuming little to begin with, it is difficult to consume less. The figures quoted in the document show that when we are witnessing a world recession we seem to be expecting the Third world to cushion itself from that recession in an impossible way. That does not suggest great understanding on our part of the problems of the Third world.
Yesterday my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) eloquently reminded us that the rate of growth in the Third world countries is only 50 per cent. of what it was five years ago. As my hon. Friend the Member for Greenwich (Mr. Barnett) said in his excellent introductory remarks, the Third world countries are dealing with serious problems —the debt crisis, crippling interest rates, the oil price increase and the fall in commodity prices, which comes as a great blow to those countries and has led to greater problems of poverty, malnutrition and so on, which we in the House want to help to solve. However, that is not reflected in the orders.
The need to restructure the programme of Third world borrowing has been made clear today. To that extent, the debate goes beyond the orders. As my hon. Friend the Member for Greenwich properly said, a certain despair arises from various recent conferences about whether the Western world is seriously worried about offering a solution to these problems. Unfortunately, these matters were given almost no attention during the general election campaign. They were given almost as little attention at what should have been a vital Williamsburg conference.
Bearing in mind our fears about the collapse of the world banking system, we have heard remarkably little from Belgrade. With regard to UNCTAD, the same uninspiring story has applied from Geneva in 1964 to Manila in 1979. Time is not on our side. If we cannot arrange these matters in a way that is relevant to the real monetary problems that the world faces, we have no right to speak our minds as we are normally entitled to do on such issues as the cost of the arms programme when the Third world and the West have so many other problems with which to deal.
The problem of the arms programme demands a great deal of attention. It is of great concern to us all that, when resources are so scarce, there is a tremendous build-up of arms, not least in the Third world. We should say as a nation that we believe that the matter should be considered, as it is an enormous problem for us and the rest of mankind.
We also have a right to speak of human rights. The hon. Member for Hertford and Stortford referred to the Philippines. The Minister should be aware that there is great anxiety, especially on this side of the House, about recent events there. People are deeply worried about the denial of human rights. We are still not satisfied that we have heard the type of explanation that we want of the Commonwealth Development Corporation project at Mindanao. As a supporter of the CDC, I do not believe that it helps to allow disquiet to continue. There is growing evidence day after day of the denial of human rights in the Philippines and the abuse of what amounts to British investment as long as the Lost Command, which we were promised would be banished from the scene, is strongly in evidence. I hope that the Minister will take that point as seriously as the House would expect.
There is an interesting link between the orders and the need for a programme for disarmament and dialogue. We have not yet paid sufficient attention to the battle of ideas. In Belgrade, Mrs. Gandhi said:
No sustained revival of the North is possible without development of the South. The world is too integrated to permit segmentation. Some countries cannot continue to prosper, ignoring stagnation in others.


If we cannot respond as a nation to the cries of humanity, perhaps enlightened self-interest will have its appeal.

Mr. Tam Dalyell: It gives many hon. Members great satisfaction that a man who, on 3 April 1982, made an auspiciously brave speech should now be Under-Secretary of State for Foreign and Commonwealth Affairs. At some length yesterday evening, as leader of the parliamentary delegation to Brazil in the mid-1970s, and with a continuing interest in that country, I asked about the Government's philosophy in helping the major debtors. The Economic Secretary to the Treasury could not answer that question yesterday evening because of lack of time, so I repeat it now.
The second question, which is probably expected of me, is this: do not all the billions that are now being spent on the Falkland Islands mean that we give much less aid to India and the poorest countries? Often a short point is effective, so I shall leave my remarks there because I wish to hear the Minister's reply.

Mr. Paddy Ashdown: I join other hon. Members in congratulating the Under-Secretary of State on his recent appointment. I welcome most of the speeches that have been made so far, and this is clearly one of the rare occasions in the House when opinions on both sides of the House are roughly similar. I do not wish to introduce an unnecessary note of contention, but some of the comments of the hon. Members for Monklands, West (Mr. Clarke) and for Greenwich (Mr. Barnett) sounded rather strange in the mouths of the representatives of a party one of whose policies is an increase in protectionism, which will do more than anything else to harm the genuine long-term needs of the Third world. The hon. Member for Monklands, West said that he hoped that we would give priority to Third world matters, but nothing could be more important than a free system of world trade for the development of the Third world.
I do not wish to go into detail about the genesis of our present position, except to say, as has been said before, and as is clearly understood by all hon. Members, that American action has brought us to this position. Many people believe, as do I, that we have reached such a position because the United States has broken its legal commitments to the funding of the International Development Agency. The sum of $245 million over which we are still haggling is relatively small, and would amount to no more than 10 hours of defence expenditure in the United States. Britain is the second largest contributor to the International Development Agency, so we must ensure that the agency achieves the bridging that is necessary to carry us across to the start of IDA 7 on 1 July 1984. I join other hon. Members in welcoming and supporting the Government's generous commitment to do that. As the hon. Member for Greenwich said, it is an important commitment that the Opposition welcome.
Before we discuss the details of that decision, it is worthwhile asking a few questions about the future, which must be answered soon. First of all, will IDA 7, the new replenishment agreement, start this year? We are concerned about whether that will come about. Those decisions must be made soon and they need to be made at least by September of this year. If that does not happen, the House should realise that some further bridging

agreements will have to be set up. We hope that the Government will put the maximum pressure on the United States to ensure that it makes a commitment towards IDA 7 as early as possible.
Secondly, if we commit ourselves and IDA 7 gets off the ground, will it have the resources to cope with the scale of the problem? The hon. Member for Greenwich has already said that this will mean a substantial increase over the funds that have been available to IDA 6 — an increase from about $12 billion to about $17 billion or $18 billion. That is a result of the fact that the Chinese may now draw on IDA funds, of the considerable problems facing the African economies, and of the rate of inflation. We need to be assured that, if IDA 7 is not to be hamstrung from the start, it will have an appropriate level of funding to cope with the problems that it will have to assist in funding.
My third question concerns the level of British contributions to IDA 7. Over the past two to three years the level of the British contribution to IDA 6, or the International Development Agency in general, has fallen. That is not unreasonable, given the change in the world situation and the British economy. However, unless the IDA is not to be hamstrung by loss of resources, it is important that the British contribution should remain at a reasonable level. We hope that the Government take this opportunity to give a commitment that the British level of contributions will be reasonable in terms both of what we can afford and of what is needed for IDA 7. This is an important point, to which the hon. Member for Greenwich also referred.
My fourth question has also been touched on by other hon. Members. Are we right to parachute loans and funds into countries that do not have the infrastructure to cope with them properly? I do not want to add much to what has already been said, but in this, the role of the UNDP is crucial. The UNDP acts as a vehicle to ensure that the infrastructure of human capacity of the countries to which those loans will be made is appropriate to ensure that the loans achieve the maximum benefit.
We echo the comments made today to the effect that the Government's withdrawal of funding from the UNDP at this stage seems to run counter to their commitment to IDA 6, and we hope in the future to IDA 7. We should wish to see that substantially reversed, because the money that IDA 6 and 7 will have available will not be appropriately used unless the infrastructure of the nations are appropriate, and the UNDP has a key role.
There are many reasons for supporting the IDA. For example, it is an organ that distributes multilateral rather than unilateral aid. I join the hon. Member for Greenwich in expressing concern at the evidence, which I have also received, about the Government's desire to move away from multilateral to unilateral aid. That is bad for the aid and development programmes of the Third world. It is also bad in raw economic terms. The ghost that somehow or other we benefit more from disbursing unilateral aid than we do from disbursing multilateral aids need to be laid. It is rather the contrary. For every £1 dispensed in unilateral aid, about 60p to 70p comes back in terms of procurement. For every £1 spent on multilateral aid £1 comes back in procurement.
Leaving aside the moral question of what we seek to do for the Third world, it is more economically beneficial for Britain to disburse its aid through multilateral rather than unilateral channels. The IDA is an appropriate mechanism


for doing so. The IDA has a good record for the quality of its aid. I join the hon. Member for Greenwich in referring to the assistance that the IDA has given to transforming the agriculture and the agricultural infrastructure of the Indian subcontinent. That is a remarkable achievement and very much to the IDA's credit.
IDA aid is aimed at the poorest segment of the developing nations. It is one of the few soft loan lifelines still available to the poorest nations of the Third world. Net transfers from IDA funds last year amounted to no less than 10 per cent. of current account deficit for the poorest nations, and about 80 per cent. of IDA's lending has been to the poorest nations of the world.
Criticisms can be levelled at the IDA, as at any organ, especially in the international field arena. In our judgment, the agency has been somewhat ineffective in generating urgent action which reflects the scale and nature of the problems of the Third world. Unfavourable comparisons can be drawn between the way in which the nations of the world have got together to deal with the debt problems of Poland, Brazil and Mexico and the way in which they have got together on a rather meaner scale and failed to deal with the extreme problems of Third world nations.
The Opposition also express concern about the way in which the IDA has exported the dogma of monetarists control. In our view, that is an inappropriate way to generate sound economies, although some Conservative Members might find it a reason for supporting the IDA.
On balance, we regard the IDA as an effective organ which dispenses aid to the right areas, mostly by appropriate methods. It has a good record. We therefore welcome the order, but, we hope that the Government will give a longer-term commitment especially to IDA 7. We hope that they will use this occasion to put pressure on the United States to reach an early decision about its commitment to IDA 7, so that it can continue without the need for a further bridging operation this time next year.

Mr. Whitney: As the hon. Member for Greenwich (Mr. Barnett) said, narrow technical orders of the kind that I was privileged to introduce today lead to wide-ranging debates on the general philosophy of our aid policy. This debate has been no exception. It is not within my capability, nor have I the time available, to respond to all the interesting points that have been made, but I assure the House that all the points will be carefully studied, especially by my right hon. Friend the Minister for Overseas Development, no doubt to his benefit and, I hope, to the further refinement of the very positive aid policy for which he is responsible.
On a personal note, I am grateful for the generous remarks made by hon. Members on both sides of the House about my appearance at the Dispatch Box. I am sorry that the hon. Member for Linlithgow (Mr. Dalyell) cannot be with us, as he is indisposed.
The wide consensus mentioned by the hon. Member for Yeovil (Mr. Ashdown) and many others is encouraging. I hope that we shall be judged on deeds rather than words. The orders demonstrate our participation in the increase in World Bank funding and the Government's commitment to the objectives so forcefully put by hon. Members in all parts of the House. I hope that there is no

misunderstanding or wrong perceptions on the matter. I hope, too, that the hon. Member for Greenwich will not be led too far astray by rumours and whispers in the corridors of UNCTAD or any other forum. By our actions let us be judged.
I hope that the concern expressed about the IDA 7 replenishment will prove to be exaggerated. Of course, we have some way to go yet. Certainly, I would not presume to forecast what other sovereign states may or may not do. The policies of the United States Government and what might happen in one contingency or another takes us into the realms of speculation and hypothesis, which I shall not enter. So I hope that we can take some comfort for what we have achieved and the determination that we have shown over these years and during the period of the last Conservative Administration, which again the hon. Member for Greenwich was good enough to recognise.
Considerable concern has been expressed about the United Nations development programme. Decisions about that have to be taken as part of the process of the overall allocation of our aid programme resources. Again, we are totally committed to the great work, to which I personally can testify, having had 10 years of experience in various connections with aid programmes thoughout the world and the effectiveness of UNDP programmes, but as always it is a question of striking a balance between the variety of commitments and pressures which there are on a necessarily limited aid budget. Those include the growing and important European aid programmes. I assure the House that the recent cuts will not affect our current year payments of £18½ million to the UN development programme.
The recent UNCTAD conference was mentioned by a number of hon. Members. It is my view that somewhat too depressing a view was taken of UNCTAD 6. Perhaps there were exaggerated expectations of what that conference might produce, but there were valuable exchanges on a number of agenda items, in particular on commodities, trade, money and finance. Certainly, the negotiations were at times slow and far from easy. But consensus was reached on more than 20 resolutions, including one on the World Bank and other multilateral development institutions.

Mr. Bowen Wells: Is it possible for my hon. Friend to publish those 20 resolutions, and in particular those that the United Kingdom delegations agreed with and supported for the benefit of the House?

Mr. Whitney: I shall certainly bring the matter to the attention of my right hon. Friend the Minister for Overseas Development, and I am sure that he will be happy to consider that possibility.
As my right hon. Friend the Minister for Trade told the House on 7 July:
UNCTAD provides a forum for deliberation over a wide field, but decisions are often taken elsewhere, by national Governments and in other international organisations". —[Official Report, 7 July 1983; Vol. 45, c.151.]
We believe that the results of the conference should be judged not only in terms of its resolutions but in terms of action taken, for example, in the IMF, the World Bank and the General Agreement on Tariffs and Trade, and on agreements reached at the OECD ministerial meeting and, I might add, at the Williamsburg summit. We should not be too dismissive or pessimistic about the results of UNCTAD.
I want to take up some of the points made by my hon. Friend the Member for Hertford and Stortford (Mr. Wells), who, as the House knows, is a great expert in these matters and constantly makes valuable contributions to these debates. As he said, we may not share his enthusiasm for some of those points but I share his enthusiasm for Adam Smith although I am perhaps rather less enthusiastic about Mr. Gordon Tether. However, variety is the spice of life.
His points were somewhat technica1, but we strongly support his advocacy of co-financing with commercial banks. The bank's executive board recently agreed a two-year trial period to test new financial instruments whereby the bank invests its funds in the commercial loan through jointly financed bank projects. We share my hon. Friend's enthusiasm for that.
I hope that I have covered the points that were made about the United Nations development programme. I recognise the problems of the IDA 7 replenishment—[Interruption.] I am sorry that the hon. Member for Warrington, North (Mr. Hoyle) did not join us for the whole debate, because we would have benefited from his contributions.
I conclude by reinforcing the point that the needs of the Third world, the valuable balance between the contribution which official aid assistance has to give private investment flows, and indeed, above all, the importance of trade are recognised. The importance of avoiding the pressures of protectionism is recognised by Conservative Members, and, I hope, by wiser Labour Members.
Our dedication to the official development aid, to the agencies of the IBRD and the IDA, is demonstrated by our contribution to expanding the funding of those two organisations on the lines that we have described.

Question put and agreed to.

Resolved,
That the draft International Bank for Reconstruction and Development (1979 Additional Increase in Capital Stock) Order 1983, which was laid before this House on 3rd May, in the last Session of Parliament, be approved.

Resolved,
That the draft International Development Association (Special Contributions) Order 1983, which was laid before this House on 3rd May, in the last Session of Parliament, be approved.—[Mr. Whitney.]

Hospitals (Hackney)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Boscawen]

Mr. Brian Sedgemore: I rise to introduce the debate on the closure of hospitals in Hackney. I begin by referring to the tragic comment by a general practitioner at the last family practitioner's committee in Hackney. He said that he was concerned that some of his patients were dying a year earlier than they should because they were having to be kept in the community when they should be in hospital. That general practitioner uses St. Leonard's hospital in Shoreditch, the proposed closure of which will form a major part of this evening's debate.
My first three questions to the Minister are simple. Why are the Government pursuing policies which are leading to the early deaths of elderly people in Shoreditch? What does the Minister propose to do about that and what is his message for that general practitioner? Of course, general practitioners are concerned with more than the loss of hospital beds for geriatric patients in Hackney. The loss of acute hospital beds in the City and Hackney health district over the past decade has been staggering. In 1975 there were 1,183 acute medical and surgical beds in the district. Today that figure has fallen to 867. According to the district health authority's plan, by 1986 it will have fallen to 797. According to the consultative document that I have with me, it will fall to 761. That 36 per cent. loss of acute beds is not the end of the matter, because page 8 of the consultative document of the City and Hackney district health authority shows that there will be a further loss of acute beds when the regional strategic guidelines come into force.
This consultative document, which proposes the closure of four hospitals, St. Leonard's, the Mothers', the German and St. Matthew's, is as shaming and shameful document as I have ever seen. It reflects something of the cynicism and barbarous nature of our times. As I read it, I realise that the concept of the National Health Service that we knew at its inception has completely disappeared. There was a time when the NHS was about disease, illness, caring for patients and access to local facilities. However, in the 1980s we see from the document that there is a new concept. The NHS is about professionalism, increasing specialisation, the needs of consultants and public expenditure cuts. I do not know whether the Minister supports those public expenditure cuts. Perhaps he will tell us tonight. I come here not to ask him or his colleagues for the quality of mercy, because it is not in them, but to ask the Minister for seven specific assurances about that consultative document.
First, will the Minister order—or, if he has not got the power, to order, request—the City and Hackney health authority to withdraw the consultative document, because it lacks integrity and makes it impossible for sensible consultation processes to take place? It should be replaced by a more mature and objective document, which will allow the public to make sensible choices. Secondly, will the hon. Gentleman give a categoric assurance that the new Homerton hospital in Hackney will open in 1986 as a fully operational district general hospital? I ask him to dispel the rumours that, if it does open, it will not open as a fully operational district general hospital.
Thirdly, will the Minister confirm that his Government will honour the pledge given by the previous Minister for Health, on 6 May 1981, to Sir Harry Moore, chairman of the North East Thames regional health authority, that St. Leonard's hospital will stay open until the new Homerton hospital comes on stream in 1986? The consultative document invites the Government to renege on a solemn and binding undertaking. Fourthly, will the Minister give consideration to upgrading St. Leonard's hospital even when Homerton hospital is opened in 1986, in order that the people of Shoreditch can get a decent health service? Fifthly, will the Minister tell the management at St. Leonard's that it is not part of the democratic process for it to hint to its workers—however elliptically the hints are given — that if they object to these closures and campaign against them, they may suffer when they look for other jobs in the Health Service?
Sixthly, will the Minister give an assurance that the staff at the German and St. Matthew's hospitals will all have their jobs guaranteed in the future? Seventhly, will the Minister give the House an assurance that the composition, and if necessary the structure, of the district health authority will be changed in order to make it more democratic, its members more sensitive to the opinions of the local community and to make it more responsive to local pressure?
In Hackney, trust in the district health authority has broken down. There is a potentially explosive situation. That situation could live on in the months ahead to haunt both the Minister for Health and the chairman of the district health authority, Mr. Freedman. Let neither of them say that they were not given warning in the House.
I wish to deal with some of those points in more detail. Few people in Hackney believe that this consultation process is real. The public, the staff at the hospitals and a number of the general practitioners do not believe it. A distinguished local GP, Dr. Alex Mills—whom I spoke to at the weekend—told me that he did not believe it. The Hackney health emergency committee does not believe it. It asked the district health authority for 1,000 copies of this document so that they could be distributed to the public. It was told that it would have to pay a vast sum for them. I can understand that the district health authority does not want too many people to examine its shoddy document, but its response was unbecoming to the democratic process.
The Hackney health emergency committee also asked if it could use displays in clinics and the outpatients' department to show what was proposed in the document. It was refused permission by the district health authority.
My main criticism of the document lies in its inherent defects. It is impossible to come to a sensible conclusion about the matters that it discusses. It says that if St. Leonard's is closed savings of £2·7 million will be made per annum. It also totally ignores masses of costs that will be incurred for the community in the proposals.
First, the document fails to calculate the cost of transferring the renal unit from St. Leonard's to St. Bartholomew's. Secondly, it refers to the capital cost of increasing the size of the outpatient's department at St. Bartholomew's but makes no attempt to cost that programme. Thirdly, it talks about a loss of 350 jobs and regards that as a saving, but it pays no regard to the cost that will fall on the community, the Treasury and the

DHSS. The economist Mukherjee has produced figures which show that it costs about £6,000 per person per year to keep someone on the dole. The Treasury's economists accept that that is a valid figure. If 350 jobs are lost permanently it will cost the community £2,100,000 a year. That will wipe out most of the so-called gains created by the proposals in the document.
Fourthly, there is no costing of the increased demand for ambulances that is bound to occur if the journies are longer and ambulances travel between hospital and homes which are separated by greater distances. Fifthly, the document recognises that transport facilities in Shoreditch are totally inadequate to get patients and others to hospital and that they will be even more inadequate if St. Leonard's is closed. Therefore, amazingly, the document talks about the district health authority setting up its own public transport system. That suggestion belongs to the world of Alice in Wonderland. If that happens, the cost will be colossal, but the document does not attempt to quantify that cost.
The document contains a curious appendix which suggests that the transport problem is about moving from one hospital to another when the problem is one of moving between patients' homes and hospital. I have yet to fathom the purpose of that appendix.
Sixthly, the document takes no account of the extra pressures that will be put on Hackney hospital with the closures of hospitals round the periphery of the borough. Moving in a clockwise direction, let us consider first the Mildmay hospital in Tower Hamlets. The acute department has closed and the casualty and accident unit is to close. That means more pressures for Hackney hospital.
Let us consider the Prince of Wales hospital in Haringey. The acute and casualty departments are to close. That means more pressure on Hackney hospital. The casualty department at the Royal Northern hospital has closed and the acute department is to close — more pressure on Hackney. At Whipps Cross, Leyton, the administrator has taken the extraordinary decision that he will not accept referrals from anyone who does not live in his area. That is the new open national Health Service.
All those peripheral closures mean more pressure on Hackney's hospitals. No account is taken of that in the document. St. Bartholomew's takes much of the money available in the region. Everyone knows that it is not a local hospital for the people of Hackney or Tower Hamlets; it is a teaching hospital that provides a luxury service for commuters to the City. When the four hospitals close, the people of Hackney will be pushed further and further out, and some will be pushed out of the borough altogether, even when the Homerton hospital opens, because the necessary facilities will not be available.
Seventhly, there is £1 million sloshing around in the document that appears to repeat itself over and over again. On one page that £1 million is being spent on maintenance; on another it is being spent on increasing primary care. That is a wonderful phrase. In the document, increasing primary care has become a buzz phrase for the closure of hospitals. The people know that primary care will not be increased in Hackney. It is extraordinary that there is a suggestion that it will be increased when the Government are penalising the local authority that is partially responsible for primary care.
Eighthly, it is amazing that geriatric beds are being taken away when we do not know the need for such beds




in the borough. What way is that for the Minister to plan the Health Service? Flow can people like me make sense of the document's references to geriatric beds when the health advisory service report on that subject has not been published? When will the Minister let us see it?
It is an illusion to talk about savings of £2·7 million a year through closing St. Leonard's hospital. It is a further illusion to believe that there will be another £500,000 saving by the closure of 50 medical beds, some surgical beds and 100 geriatric beds.
My second point relates to the Homerton hospital. I want an assurance from the Minister that it will open. My third point concerns the binding pledge that the previous Minister the hon. Member for Reading, East (Dr. Vaughan), gave to Sir Harry Moore that St. Leonard's would not be closed until the new Homerton hospital opened. In his letter of 6 May he said:
I must, however, make it clear that my decision to approve these changes is taken on the assumption that St. Leonard's continues to be a viable acute hospital, with general medicine, day-time casualty, geriatrics, a renal unit, mental handicap and out-patient and chiropody services … I wish the Regional Health Authority and Area Health Authority (Teaching) to ensure the hospital is able to run these services effectively and that staff, patients and the community do not feel the hospital is being run down … All those interested in St. Leonard's Hospital will recognise that the opening of the new Homerton Hospital is bound to have an impact on all the services provided in the District and it will be necessary for the new District Health Authority to develop a fresh strategy covering all the hospitals in the District. It must, however, be understood that until such a strategy is agreed I shall not be willing to approve further reduction in services at St. Leonard's Hospital.
If I understand anything about politics, and it is difficult to understand much about the incompetent way the Health Service is being run now, it is that the district health authority and the Government intend to welsh on the pledge given by the previous Minister. If that happens, it will reflect on the very integrity of the central core of Government. It will incense and inflame the people of Shoreditch. That will have calamitous consequences for many years to come.
The document has politicised one of the most reactionary groups of people in Britain — the general practitioners. No fewer than 102 of them have signed a petition protesting against the closure of the hospital. They protest because they know that it is uniquely geared to meeting the needs of the people of Hackney. They know that increased expenditure on primary care will not happen and that a colossal burden will fall upon them. What will the Minister say to those 102 GPs?
The public's criticism is condign and total in their opposition to the proposals. Already there have been public meetings at Stoke Newington, Daiston and Shoreditch. I went to the Shoreditch meeting. The temperature there was extraordinarily high. I am not surprised that 10,000 people have already signed a petition and that by September another 10,000 will have signed. Nor am I surprised that there is to be a week of action leading up to 26 September, when the decision will be taken by the district health authority. I am not surprised that priests are on the march in Hackney or that schools are taking part in the demonstrations. Nor am I surprised that there will be a strike call.
I repeat, there must be no intimidation of the workers at St. Leonard's hospital, and we need assurances about jobs at the Mother's and the German hospital. As for the composition of the district health authority, the voting has

always been close on the closure of the hospital. I attended the last meeting. None of those who voted for the closure came from Hackney or Shoreditch. Indeed, none of them lived in those places and many of them literally could not find their way to Shoreditch without the aid of a taxi or a map.
Consultants from St. Bartholomew's hospital combined with two people from the Royal College of Nursing to tell local people that their hospitals would be closed. I was sad to see Lady Richards, who has expressed concern about hospitals in Shoreditch, toe the line of the Royal College of Nursing and make a speech which by any description was duplicitous. She said that St. Leonard's hospital was unsafe. But she has been a member of the very authority which has withdrawn the services which have made that hospital unsafe, if unsafe it be.
We must have more control over what goes on at St. Bartholomew's hospital and over the consultants there. I will give only one example in that context, and then I will resume my seat and listen to the Minister's reply with interest. There is an increasing specialisation going on in hospitals. Mr. Shepherd arrived as consultant obstetrician and gynaecologist. He has a particular interest in gynaecological oncology. He performs controversial radical vulvectomies. I am not here to say whether clinically he is right or wrong, but this increasing specialisation is calling for more expensive equipment and is occupying beds for long periods, and this has not been properly budgeted for. That is happening all the time in teaching hospitals, and smaller hospitals like St. Leonard's are having to close. It is happening at a time when there is a drain on resources and when the Government are taking away £2·3 million over five years in so-called efficiency provisions.
When Homerton hospital opens, money will disappear under the mini-RAWP scheme from Hackney to Essex. Last week the Government announced cuts worth £97 million in hospital expenditure, and more will be announced in the autumn. The people of Hackney are suffering. They will not put up with the attitudes of the patronising middle classes telling them how to organise their lives. The Minister has been warned about these impending closures.

The Under-Secretary of State, Department of Health and Social Security (Mr. John Patten): The hon. Gentleman's voice could almost be heard in Hackney tonight. It was certainly loud and clear to all on the Government Benches. He has left me little time in which to answer the many points he raised.
He is fond of writing in his column in the New Statesman—how that publication has changed—criticism of the speeches of some of my hon. Friends. He describes them as being devoid of wit, rigour or interest. Perhaps he would offer me two inches in his column this coming week to point out the way in which he has demonstrated to the House tonight how not to make a speech on the Adjournment. He demanded answers to seven questions, then he made eight points and introduced three more questions—the record will show this—repeating himself on each occasion.

Mr. Sedgemore: Get on with it.

Mr. Patten: I did not interrupt him.

Mr. Sedgemore: Answer the debate.

Mr. Patten: The hon. Gentleman is fond of trying to hand out punishment both in this Chamber and in the New Statesman. I shall answer in my own way. I shall endeavour to answer in writing the seven questions and the eight issues that the hon. Gentleman asked and raised if I cannot answer orally in the extremely short time that he has left me. If he had had the courtesy to let me know beforehand some of the questions to which he wanted answers, I should have endeavoured to follow them up. I accept that I had the chance to read his remarks in The Standard.
I can understand fully why the hon. Gentleman and his constituents feel strongly about the closure of a much-loved local hospital. I was in exactly the same position myself with the closure of a similar hospital in my former constituency about two years ago. Such hospitals arouse strong feelings and passions among the local people. That is especially so in the hon. Gentleman's constituency of Hackney, South and Shoreditch, which everyone recognises is a deprived inner city area, albeit one suffering from a quite rapidly declining population.
The hon. Gentleman made some wild allegations about my right hon. Friend's policies for the Health Service and about the policies of my hon. and learned Friend the Minister of Health, who is sitting beside me on the Treasury Bench. I shall resist the temptation to respond to those allegations because I wish to deal, first, with the financial background to the situation in the Hackney area and, secondly, to consider the proposed closure in as much detail as I can in the short time that is left to me in the debate.
It is misleading to talk about a diminution in health services in the hon. Gentleman's area. I object strongly to the hon. Gentleman making that assertion. The services administered by the City and Hackney health authority include one of the great teaching hospitals, St. Bartholomew's—the hon. Gentleman does not seem to care much for it—and another centre of excellence—St. Mark's — which provides a unique gastroenterology service for the entire region. There are three separately managed postgraduate hospitals — Moorfields eye hospital, Queen Elizabeth children's hospital and St. John's hospital for skin diseases. All these hospitals are located within or on the district boundaries. As the hon. Gentleman mentioned, there is a brand-new hospital under construction at Homerton, which is being built at a cost of about £21 million. There is some deprivation for the hon. Gentleman's constituents! That hospital is due to open in 1986 and it is on target to do so.
A number of other hospitals will have to close or continue with different functions. I do not think that anyone can argue seriously that we can staff and run new hospitals alongside every hospital that they were designed to replace. The new hospitals were often designed by previous Labour Administrations. If we are to make any progress in developing hospital services within the resources that the country can afford, some of the old hospitals will have to close, however valuable their contributions may have been in the past.
Whatever closures take place after the process of consultation—I hope that the hon. Gentleman approves of consultation as a process—the district will be left with excellent acute hospital services that will be the envy of many other regions and districts in other areas.
Before I go into the details of the proposals of the City and Hackney health authority, I shall sketch some of the background. The authority serves a declining population of about 184,000. That is something that the hon. Gentleman failed to mention. The authority is over-provided — I choose my words carefully—with acute hospital beds. By no stretch of the imagination can it be said to be starved of financial resources. That is palpable nonsense.
The North East Thames regional health authority calculates that the revenue allocation of the City and Hackney health authority is about 15 per cent. above its revenue target, which means that in terms of health resources it is one of the best provided districts in the region and throughout the country. Hon. Members on both sides of the House would wish to have such hospital provision.
The regional health authority is following a strategy of switching resources from over-provided to underprovided districts and from acute hospital services to the development of services for the priority care groups—the elderly, the mentally ill and the mentally handicapped who concern us all in the DHSS.
The RHA is trying to effect those changes without damaging existing services. That is entirely consistent with Government policy as set out in our document "Care in Action". It is a document which has been widely accepted and praised in the health care world. It is bound to mean some change in the existing pattern of services which cannot be set in concrete.
In the last two minutes available to me I shall deal with Hackney and the seven questions, eight points, three reiterated questions and further points mentioned by the hon. Gentleman. District health authorities are responsible for the planning of health services in their districts within the resources available to them.
Last year my hon. and learned Friend the Minister for Health and the regional chairman agreed at the regional accountability review meeting that the RHA would produce a plan which would demonstrate how revenue would be found to open the new Homerton hospital—on target for 1986—and improve the priority services in the district.
It was agreed that details of the proposed hospital closures would be provided and that consultation on closures and changes of use associated with the Homerton scheme would begin as soon as possible. It is exactly that consultation process that is taking place now. I reject utterly the hon. Gentleman's allegations of incorrect consultation, of the democratic process being rigged and of the correct procedures not being followed. The correct procedures are being followed.
Throughout the hon. Gentleman's speech there were veiled hints and innuendos about threats to the consultation process in the political undergrowth and threats by the DHA to people who work in the Health Service. Those allegations do not help his case, but, none the less, with the best will that I can compose, I will endeavour to write to the hon. Gentleman and deal with some of his seven questions and some of his eight points.

Question put and agreed to.

Adjourned accordingly at three minutes to Eleven o' clock.